Rising oil prices energize New Era Fund

INVESTING

May 09, 1999|By BILL ATKINSON

TWO YEARS after Charles M. Ober took charge of the T. Rowe Price New Era Fund, he finally has something to smile about -- rising oil prices.

Inflation is good for Ober's New Era. The fund thrives on misery. It invests in crusty, unglamorous companies that refine oil, grind wood into paper and dig for gold and other metals.

These companies do well in times of political unrest, war and high inflation because their resources generally increase in value.

But inflation has been dead, and these companies have struggled because prices for their products have declined over the past two years. As a result, New Era returned a negative 9.9 percent last year.

Ober is starting to beam, however, and his smile could turn into a belly laugh if prices keep rising. Since oil prices started trending up, the fund's performance has jumped, returning 21.2 percent for the first four months of the year.

"It has been a long time coming," said Ober, 49. "It certainly looks a lot better. I think we have made the low in most of these commodities. I think we are definitely in a recovery path in energy."

After selling for about $40 a barrel in 1990, oil prices skidded to about $10 a barrel in late 1998. But then the Organization of the Petroleum Exporting Countries -- OPEC -- cut production earlier this year, causing the price to rise to about $18 a barrel.

About 45 percent of New Era's portfolio is invested in oil-related companies, and rising prices have helped drive returns.

"The energy picture is pretty good," he said. "We are talking about 60 percent of the portfolio that I think is definitely on a recovery path; the other 40 percent is going to go sideways for a period of time."

Prices for copper and steel have also been edging higher, and investors are starting to pump money into companies that mine and produce the materials.

As a result a number of New Era's holdings, which were thrashed months ago, are rising.

Inco Ltd., a nickel producer, has rebounded from $8.25 a share in September to about $18. Copper producer Phelps Dodge Corp. is up from $41.875 in February to the $68 range. And Champion International Corp., a forest products company, which hit a low of $25.6875 in October, trades in the $57 range.

Ober has a tough act to follow in running New Era, which has about $1.2 billion in assets under management. He took over the fund in April 1997 from George A. Roche, the chairman of T. Rowe Price, who ran New Era for 17 years.

While Roche ran the fund, it returned 13.05 percent annually on average. In 1979 and 1980, the fund really shined as the economy struggled with double-digit inflation. The fund returned 59.9 percent and 52 percent respectively.

"I think Charlie is doing a wonderful job," said Roche, who is in the office next door.

Roche should know, because Ober worked as an analyst on the fund shortly after joining the company in 1980.

Roche isn't a back-seat driver. When he gave up the fund, he withdrew from it completely.

"He's really in charge," Roche said. "I tell him I'm right next door if he wants to ask questions about stuff."

When Ober took charge of the fund, his timing couldn't have been worse. Asia's economic meltdown was in full swing, and Russia was about to default on its debt.

The crises sent prices for copper, oil, zinc and other commodities spiraling.

"It has been frustrating from that standpoint," Ober said.

But Ober already sees signs that Asia is recovering, which is key because it is a voracious consumer of fuel, steel and other commodities. If capital again flows into Asia and business picks up, commodities prices are likely to rebound.

"I think it takes another couple of years before we see a pretty dramatic tightening in the commodity picture," Ober said. "I think we have gone through the worst in emerging markets."

In the meantime, he is buying energy, natural gas and chemical stocks, which he expects to do well as Asia recovers.

He's not hoping for an all-out war, or political turmoil in the United States, but he wouldn't mind seeing prices a notch or two higher.

"We have been in the Goldilocks world for some time now," Ober said.

"Things change."

Pub Date: 5/09/99

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