The highest oil prices on record are helping Charles Ober, manager of the T. Rowe Price New Era Fund, beat the Standard & Poor's 500-stock index for a sixth straight year.

"Commodity prices will remain strong" because companies haven't invested enough to keep up with demand, the 54-year-old money manager said in a telephone interview from his Baltimore office. "Producers with low-cost resources and expansion potential will perform well."

The $1.6 billion fund, which is required to put at least two-thirds of its assets in natural resource companies, returned an average of 8.2 percent annually the past five years, versus a 2.8 percent loss for the S&P 500. A $10,000 investment would have grown to $14,871.

New Era ranks 10th of the 24 natural resources funds tracked by Bloomberg over that period. State Street Research Global Resources Fund ranked first, with a 24 percent annual return. This year, the T. Rowe Price fund is up 7.3 percent as the S&P 500 has fallen 1.5 percent.

Ober said his optimism for energy-related shares stems from companies' inability to keep up with demand. The oil industry failed to spend enough developing new production because executives weren't predicting high enough prices to justify the investment, he said.

Companies such as Murphy Oil Corp. and Baker Hughes Inc. will outpace the market over the next 18 to 24 months, Ober said. Crude oil futures prices will remain high enough to sustain earnings, even though they may retreat after a 45 percent surge this year to records, he said.

"We are now at the lowest point, in my memory, in spare capacity," said Ober, who started his career as an analyst at Morgan Guaranty Trust in 1975 and has managed the New Era fund since 1997.

That means companies belatedly will have to boost spending to produce more crude, benefiting Baker Hughes, the world's third-largest oil field services company, he said. The Houston company is the fund's seventh-biggest holding. The stock closed at $39.35 on Friday.

Ober thinks another reason companies haven't made bigger investments in new production is that the managers are no longer "wildcatters" who are eager to mine or drill, but financial managers who rose in stature when commodity prices, and company profits, were lower.

"Nobody believes in $40 oil; very few believe in $30," said Ober, who expects the price to settle in the low $30s or possibly the high $20s should turmoil in oil-producing countries such as Iraq subside.

Qatar's OPEC governor, Abdullah H. Salatt, said the Organization of Petroleum Exporting Countries is pumping as much oil as possible.

From 1985 through 2002, oil prices averaged about $20 a barrel. Crude oil futures closed at a record $48.70 Thursday in New York. Purnomo Yusgiantoro, Indonesia's energy minister and president of OPEC, said last week that oil may fall to $30 a barrel next year as concerns about supply disruptions in Iraq, Russia and Venezuela ease.

Meeting with executives helps Ober assess how they make decisions and allocate capital, the fund manager said. He holds 92 stocks in the fund.

Murphy Oil will thrive partly because of chief executive Claiborne P. Deming's skill at investing in exploration and buying properties at times when other oil companies aren't interested, Ober said.

He cited Murphy's investment in Syncrude Canada Ltd., the largest oil-sands miner, in 1993 when crude oil futures averaged about $18.50 a barrel. Shares of Murphy, based in El Dorado, Ark., have returned 184 percent over the past five years, fourth-best among 23 energy stocks in the S&P MidCap 400. The stock closed at $71.80 per share on Friday.

T. Rowe Price New Era Fund is Ober's fourth- or fifth-biggest personal investment. "I don't think it should be anyone's No. 1 investment," he said, because the fund isn't diversified among industries and its value reflects changes in commodity prices, which company executives can't control.

The fund had more than 94 percent of assets as of June 30 in companies that own, develop, refine or transport oil and other raw materials. The S&P 500, designed to reflect the U.S. economy, gets less than 10 percent of its value from energy and raw-material stocks.

Ober's biggest personal investment is in shares of his employer, T. Rowe Price Group Inc.

According to Ober, New Era is worth owning along with stock and bond funds because the fund's assets tend to hold their value when inflation increases, offsetting declines in bonds and some stocks. "It is a good inflation hedge," said Ober, who said he expects inflation to rise over the next three to five years.

The consumer price index increased 3 percent in the past year. That's more than the 2.4 percent average over the past 10 years. Consumer prices fell 0.1 percent in July, a government report showed last week.

Newmont Mining Corp., the world's largest gold producer, is the fund's biggest investment at about 3 percent of assets. "Gold is going to go up," he said, as inflation rises and the U.S. dollar weakens.

Gold futures in New York have fallen 2.8 percent this year after reaching a 15-year high of $433 an ounce on April 1.

The fund has about 25 percent of its assets invested outside the United States. Ober said he plans to visit Libya and Egypt in the fourth quarter with managers of Eni SpA, Europe's fourth-biggest oil company.

T. Rowe Price New Era holds stocks for an average of four to five years. The fund's annual expenses of $7 per $1,000 of assets are less than half the average of similar funds tracked by Bloomberg.