There are unrealistic expectations about these funds that come from a misunderstanding of the investment, says one fund manager of a natural resources fund. Most energy funds have a significant correlation with the S&P 500 because they usually load up on diversified oil companies instead of purer commodity investments, such as futures. "These funds tend to revert back to the mean in their performance. They are buying big companies that are not as volatile performers as some that we are using," says Kevin Baum, manager of the Oppenheimer Real Asset Fund.

Baum's fund enjoyed an incredible performance last year. It was up 27.44% (and up another 22.5% in the first two months of 2003), just the kind of number that is an argument for how these funds are supposed to function-outstanding performance when the stock market is in them doldrums.

Baum became a rising star of this sector last year, in part, because he benefited from having some gold in the portfolio. Instead of oil company stocks, he concentrated the portfolio in commodity-linked bonds and commodities futures.

This purer play strategy paid off, but also has had some dicey moments. Oppenheimer Real Asset's five-year number is minus 0.94%, which is mostly the result of losing 44.8% in a disastrous 1998, when the S&P was up almost 30%. Natural resources funds as a group were down 25.34% that year, when inflation was almost nonexistent and the stock market was sizzling.

But in 2002, he took the controversial step of putting gold in his portfolio. Morningstar's Healy, analyzing last year's performance, said that funds in this category that had low gold exposure struggled.

It is not surprising that Oppenheimer Real Asset is now near the top of this greasy pole. Unlike other natural resource funds, Baum's fund doesn't have a significant correlation with the S&P 500. For example, Real Asset has a beta of 0.07, while the average fund in this group has a beta of 0.73.

More traditional funds, such as Vanguard Energy and T. Rowe Price New Era, are expecting to benefit from a turnaround in the stock market and the general economy. Vanguard Energy's beta is 0.64. Its manager says it doesn't need a huge jump in oil or natural gas prices for his portfolio to prosper.

"These days we've been able to pick up a lot of energy companies at huge discounts," said Vanguard Energy manager Karl Bandtel. The fund lost 1.69% last year and had a five-year annual return of 4.69%. Bandtel, a longtime advisor to the fund who just became manager, took a beating last year on his refinery bets. But he believes that he got cheap buys on companies such as Valero Energy and Sunoco.

"With the discounts we have achieved, we believe our fund can do well with $21-a-barrel oil," he adds. "I also think that, when the economy turns around, there is much unused capacity in the energy business that is going to benefit," he says. Vanguard Energy is betting on a world economic recovery. Bandtel stresses there is undercapacity in much of the developing world that diversified oil companies can tap.

"As economies in the developing world start to expand again, all of these companies are going to benefit because they have huge operations there," Bandtel says. This is a theme shared by most other managers in this sector.