As you pay more for gas and heating oil, energy stocks and the funds that invest in them are enjoying a tremendous run, but financial professionals...
As you pay more for gas and heating oil, energy stocks and the funds that invest in them are enjoying a tremendous run, but financial professionals say you should consider the risks carefully before you load up on this hot sector.
On Wall Street, what goes up invariably must come down, which makes chasing performance a dangerous strategy — you might make the classic blunder of buying high and selling low.
Sector funds are volatile in general, but few parts of the market are as volatile as energy, said Jack Brod, principal of asset-management services at The Vanguard Group.
“Sector funds can be extremely volatile and can behave more like an individual stock than a fund,” Brod said. If you’ve held a broad market fund for more than a couple years, your energy stake has already been on the rise.
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The 29 energy stocks in the Standard & Poor’s 500 make up almost 10 percent of the cap-weighted index, up from 5.8 percent at the end of 2003. Year-to-date, as of Sept. 6, the sector has surged almost 36 percent. That follows a rise of 28.8 percent last year.
“We haven’t seen a run-up like that, God help me, since technology,” said Howard Silverblatt, editor of quantitative services for S&P.