The Oppenheimer Real Asset Fund, the first U.S. mutual fund designed to track commodity markets, rose almost twice as much as the average stock fund this year as oil prices set...

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The Oppenheimer Real Asset Fund, the first U.S. mutual fund designed to track commodity markets, rose almost twice as much as the average stock fund this year as oil prices set records.

Oppenheimer’s 7-year-old fund, managed by Kevin Baum and Angelo Manioudakis, invests in an array of commodities from energy to livestock.

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The fund was up 20.3 percent in 2004, through Dec. 14, exceeding the average 11.6 percent gain of U.S. equity funds and the average 4.1 percent advance of bond funds, data compiled by Bloomberg show.

Assets of the Oppenheimer fund more than doubled to $1.1 billion since the end of 2003. In the period, oil prices climbed 29 percent, topping a record $55 a barrel in October because of unexpectedly strong demand, including that of China.

“With the growing U.S. economy and explosive growth in China, the demand for energy is rising rapidly,” Baum said from his office at OppenheimerFunds in New York. “The supply response really hasn’t been there.”

The Oppenheimer Real Asset Fund climbed at an average annual pace of 24 percent during the past three years, outperforming the 4.1 percent gain of the Standard & Poor’s 500 Index, including reinvested dividends.

The fund uses the Goldman Sachs Commodities Index, a measure of 24 commodities, as its benchmark. The Goldman index rose at an annual rate of 22 percent in the past three years.

Futures contracts

Oppenheimer’s fund buys commodities mostly through futures contracts and structured notes, or bonds whose returns are linked to the performance of the Goldman index.

Baum doesn’t buy shares of commodities producers, shielding the fund from company-specific problems such as earnings slumps and labor walkouts.

The fund invests more than 70 percent of its assets in petroleum and natural gas, which roughly matches the Goldman index’s allocation. The remainder is divided among agriculture, livestock and metals.

“Energy prices are going to drive the fund,” said Karen Papalois, a fund-industry analyst at Morningstar.

“As easy as it is to have the hefty returns, the fund can easily lose money. It’s definitely a dangerous game to play.”

The oil and gas holdings have buoyed the fund as crude-oil futures rose to an all-time high of $55.67 on Oct. 25 amid growing demand from China.

The country became the world’s No. 2 oil consumer last year after the U.S., surpassing Japan. Oil use in China is expected to rise 15 percent to 6.3 million barrels a day this year, according to the International Energy Agency in Paris.

Supply concerns in the U.S. also boosted prices. Colder-than-normal temperatures are forecast for this winter in the eastern third of the U.S., according to the Earth Satellite, prompting concerns about heating-oil supplies.

Uncertainty about stocks

Funds that invest in commodities have gained in popularity amid concerns that stock returns will be limited and interest rates will rise further, said Robert Leary, managing director of AIG Financial Products, a unit of New York-based American International Group.

“There’s clearly uncertainty about stocks,” said Leary, whose company sells structured notes to Baum’s fund.

Allianz AG’s Pacific Investment Management started a commodities fund two years ago called the Pimco Commodity RealReturn Strategy Fund.

The $6.3 billion fund, managed by John Brynjolfsson, invests in commodities and U.S. Treasury inflation-protected securities. It was up 9.8 percent this year, through Dec. 14.

The Pimco fund is benchmarked against the Dow Jones-AIG Commodity Index, less concentrated in energy stocks than the Goldman index.

Commodities “have almost been a neglected corner of the investment universe,” said Geert Rouwenhorst, a professor at Yale University’s School of Management in New Haven, Conn. “It will come into the mainstream in the near future.”

For the past 43 years, commodities have performed as well as the S&P 500 and outperformed corporate bonds, according to a study that he co-wrote earlier this year. Rouwenhorst said commodities should be included in a diversified portfolio.

“Investors shouldn’t put all their eggs in one basket,” he said. “Eggs are a commodity, I realize.”