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Mutual Fund Notebook
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October 19, 2000: 1:16 p.m. ET
Natural resources fund is at the top; Fund scorecard in volatile session
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - As the Dow Jones industrial average hemorrhaged 433 points in one volatile session this week, fund manager Mark Baskir was perhaps one of the few stock pickers on Wall Street who had reason to smile.
Beskir's Strong Limited Resources Fund is up about 30 percent year to date as of Wednesday, amid soaring oil prices and news that one of his holdings, Chevron, is acquiring Texaco.
"The story will be energy for the next few years," Beskir said. "There are changes in the market and these changes are decades-long changes."
Also in this column: Baskir talks about why he likes Chevron; How some mutual funds fared on Wednesday when the Dow plunged; And a question on the differences between index funds and hybrid funds.
On Wednesday, the Dow closed below 10,000 for the first time since March 14, triggering fear among long-term investors about what to do with their long-term savings.
For Baskir, who also manages private accounts at Strong in a career that spans nearly 30 years, the latest shift in the market has been exciting. The fund has $12.5 million in assets and has been hammering the S&P 500.
 Natural resources funds have been soaring recently and were the top-performing sector in the week ending Oct. 13, with average returns of 1.83 percent, according to fund-tracker Morningstar.
Baskir said the advantage of a natural resources fund in a diversified portfolio is it will help investors weather tough times when the market is fickle.
"Until a year ago, nobody knew anything about oil and nobody cared," Baskir said. "You could drive your car, go home and turn on your computer, and you didn't give it a thought."
Baskir said people had forgotten what it was like in the early 1970s, when Arab nations launched an embargo against the United States for its support of Israel. Oil, once plentiful at $3 a barrel, soared to $12 a barrel in one month in 1973.
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"There was such a panic in the market that oil prices were forced up," Baskir recalled. "The world is in a similar situation today."
Oil continued to rise through the 1970s, and by 1980 the sector was so developed that energy stocks represented 28 percent of the S&P 500.
The sector then went through a period of consolidation, and by the mid-1980s represented less than 20 percent. By the 1990s, energy represented about 10 percent of the market.
While technology, media and telecoms represent about one-third of the S&P 500, Baskir thinks energy will continue to grow.
"I've seen a lot of ups and downs, a lot of bull markets and a lot of bear markets," Baskir said. "I see this remarkable bull market as being able to sustain good performance by a shift in emphasis on different sectors."
Chevron: A company that is a survivor
About 80 percent of the fund is in oil right now, though it also can invest in chemical, forest products, aluminum and steel companies. Exxon Mobil Co. (XOM: Research, Estimates) is the top holding.
Chevron (CHV: Research, Estimates) represents about 2.2 percent of the portfolio and is the number 15 holding out of 53 stocks, he said.
Chevron, the No. 3 U.S. oil company, sealed a long-rumored agreement to buy No. 2 Texaco Inc. for $35.7 billion. The deal will build a mighty international oil business rivaled by only a handful of companies worldwide.
"I've owned Chevron because I like the management and the growth prospects," Baskir said. "I'm very pleased Chevron is a survivor. They're a stronger company than Texaco."
Chevron was one of the few companies who invested early in the two most promising areas of the world for oil, the west coast of Africa and Azerbaijan.
Even in tough times, outgoing Chevron Chairman Kenneth Derr was always eager to invest in new fields and new parts of the globe, Baskir said.
"This is a very attractive part of the economy now," Baskir said of the oil sector. "Money is flowing into these companies, their earnings are good, their companies are healthier, and they will be in a healthier environment to grow."
Funds have a rough day
Still, natural resources funds didn't escape the volatility that rocked Wall Street on Wednesday. The sector was off an average of 0.56 percent for the day, according to fund-tracker Lipper Inc.
Many categories got stung on Wednesday, including science & technology, down an average of 2.88 percent, and telecom funds, off 2.93 percent, Lipper said.
Large-cap growth funds gave up 1.18 percent, while their value cousins lost 0.46 percent. Small-cap growth funds lost 1.73 percent and small-cap value fell 0.55 percent.
The top-performing funds on Wednesday were Fidelity Select Paper & Forest Products, up 5.17 percent; Rydex Leisure, up 3.10 percent; and Rydex Biotech, up 2.67 percent, Lipper said.
At the other end of the spectrum, the biggest losers were New Frontier, off 8.97 percent on Wednesday; American Heritage Fund, down 8 percent; and Turner Wireless & Communications, down 7.34 percent.
Question of the week: Index fund or hybrid fund?
Mutual funds allow you to leave the stock picking to experts, but you're still going to have to choose from nearly 11,000 names for your portfolio, 401(k) or IRA. There are also dozens of different types of mutual funds, from large growth to tech sector funds to high-yield bond funds.
One reader wrote CNNfn.com recently with a question about index funds and hybrid funds.
Question: I need advice on choosing between an index fund and a hybrid fund.
An index fund pegs itself to a benchmark like the Nasdaq composite or the Dow. An S&P 500 index fund, for example, owns all 500 stocks in the index and is considered "passive," meaning the manager makes sure the fund tracks it faithfully. Many financial advisers recommend index funds because the fees are lower.
A hybrid fund, by contrast, invests in stocks, bonds, convertible bonds and cash, according to Morningstar. Many keep about 50 percent of their assets in stocks, 35 percent in bonds and the rest in cash, but managers will adjust their portfolios based on what is happening in the market, Morningstar said.
You can learn more about mutual funds on CNNfn.com's mutual fund page. Or, if you need portfolio help, e-mail our experts at retirement@cnnfn.com. 
-- Click here to email your fund questions or comments to Staff Writer Martine Costello
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