Add fuel to your portfolio

"Over the past couple of years, energy prices have generally risen strongly, helping boost the profits of many companies in this sector," says Sheridan Admans, investment research manager at The Share Centre. "As more of the world's inhabitants move out of poverty it is likely that, until alternatives can be developed and distributed on a commercial scale, energy prices will remain on an upward trajectory for some time. Also, the debate on a solution to the energy crisis is only starting to take shape. It is likely that over time we will see the cost of living rise, pushed by higher energy costs – something we have had a taste of in recent years. This is driven by supply and demand issues as well as speculation, conflict and technology."

If you want to get exposure to the companies that will benefit from these issues, take a look at Investec Global Energy Fund. The fund aims to identify the companies ideally placed to support increasing demand for energy. It is one of the better-performing energy funds over five years, in line with its objective of long-term growth, and has beaten its benchmark, MSCI World Energy, since launch in 2004. The fund has also returned 33.68 per cent over the past three years against 32.42 per cent for FTSE Global Energy index

The fund primarily invests in companies that are involved globally with exploration, production, and distribution of oil, gas and energy sources, and companies that service the energy industry. Its managers, Mark Lacey and Jonathan Waghorn, take both an economic view, considering factors such as supply and demand, and a stock selection approach to picking investments.

Individual stock selection is driven by the managers' belief that resource company share prices are driven by five characteristics over time:

■ Capital management

■ Valuation

■ Earnings

■ Asset quality

■ Sentiment.

The fund has around 43 per cent of its assets in exploration and production because its managers are buying high-quality companies with oil and natural gas price leverage, production growth and attractive asset-backed valuations while they are still relatively cheap. The fund also has more than a fifth of its assets in service companies such as Transocean and Baker Hughes because the managers believe the oil and gas industry investment cycle has significantly further to run, and that these companies are not valued accordingly.

The fund has a reasonable total expense ratio of 1.61 per cent, a fairly standard level for an open-ended equity fund - and much cheaper than a number of other specialist sector funds.

Returns on the fund can be quite volatile. In 2008, for example, it lost more than 46 per cent as the oil price crashed, but in 2009 it rose more than 50 per cent. Its portfolio is also relatively concentrated, with only 36 holdings. "Investors should note that we regard an investment such as this as higher risk, given its sole focus on energy, and it should therefore only constitute a small proportion of a well-diversified portfolio,"adds Mr Admans.

True, there's already a big choice of natural resources companies on the UK stock market. But the UK has fewer and smaller service companies than the US, and no real pipeline or refining shares. So if you have a high risk appetite, a global outlook and long-term investment horizon, this could be a good way to exploit an area that looks set to grow. Buy.

Source: Morningstar, *Investec. Performance data as at 11 April 2012

Top 10 holdings as at 29 February 2012

Sub sector breakdown