If you think oil will bounce back, here are the best ways to play the bet, according to pros

Published Thu, Apr 23 202011:25 AM EDTUpdated Wed, Apr 29 202011:28 AM EDT

(This story is for CNBC PRO subscribers only.) Oil prices are at historic lows , and for those who believe a rebound is coming, energy sector experts say there are a number of ways to play the upside. This includes commodity-focused exchange-traded funds, as well as funds that track the broad energy industry in addition to more specialized ones that focus on particular parts of the ecosystem. There are also, of course, individual stocks. Investors can bet on the future price of oil directly by trading West Texas Intermediate crude contracts tied to a future delivery date, although experts typically advise against this. The derivatives market can be tricky even for pros, and during times of wild swings — like the present — investors could potentially expose themselves to steep losses. "The crude situation remains dicey at best, and for retail investors it comes down to two things: Risk and reward. By trading the crude market now, you might get a small reward, but risk is off the charts," JJ Kinahan, TD Ameritrade's chief market strategist, told CNBC. "If you're tempted to trade crude now, ask yourself if you feel comfortable rushing into a burning building when the firemen can't put out the flames," he added. But there are many other ways to bet on a rebound. Here's what the pros advise: Commodity-focused funds: For those who do want to bet on the price of oil directly, there are a number of funds that seek to track the price, including the United States Oil Fund . But this week has shown that this type of vehicle can be risky for investors who buy the fund believing that it will offer long-term upside if oil moves higher. The fund, which trades under the ticker 'USO,' owns futures contracts rather than the spot price of oil. This has always been part of the fund's mandate. But the recent record inflow of money into the fund, which has seen the administrator UCSF issue new shares to meet demand , suggests that people may think they're betting on the price of oil itself . USO shares have plunged 43% in the last week, and in an effort to stem further losses, UCSF has announced a number of structural changes. For one, the fund will begin holding a mix of longer-term contracts rather than just focusing on the front-month, or nearest contract. Experts say that retail investors who do not completely understand the commodity futures market should steer clear of this type of fund. Warren Pies, energy strategist at Ned Davis Research, said that at best these types of funds "are expensive ways to gain programmatic futures exposure." At the worst, he said, they are "designed to implode." Another commodity-focused fund from UCSF is the United States 12-Month Oil Fund, which trades under the ticker 'USL '. Like the USO it also holds West Texas Intermediate futures contracts, except that it owns a mix of 12 contracts, so unlike the USO, it isn't as exposed to the near-term contracts. USL has dropped 19% over the last week. Specific stocks: Buying energy equities is not an outright bet on higher oil prices per se, but oil and gas companies are obviously a beneficiary when crude rises. Brian Kessens, portfolio manager at $10.2 billion Tortoise , said that upstream companies are the most highly levered to the price of oil, but that the fund believes companies in the midstream sector — which transport crude oil and natural gas — offer better reward. Kessens said that the midstream players have been hit hard amid the broader energy downturn, but argues that the sell-off is "far, far overdone." He pointed to Plains All American as one of the firm's top picks. "Plains moves one out of every three crude oil barrels that's moved on a daily basis so clearly they have exposure to crude oil in a big way," he said of the Houston-based company. Kessens also likes Enterprise Products Partners . "They pick up the molecule, be it crude oil or natural gas, at the wellhead in a lot of cases, and they're able to get it all the way to the water for export, so if you get a rebound in energy they would benefit in a big way," he said. As worldwide oil storage rapidly fills, Kessens noted that these two companies, as well as Energy Transfer , have pipeline capacity and dedicated storage. While Tortoise prefers the midstream companies, for investors who want upstream exposure Kessens' top picks are EOG Resources , Concho Resources and Pioneer Natural Resources . Oil prices have dropped to record lows as the coronavirus pandemic continues to sap worldwide demand for crude. On Thursday West Texas Intermediate, the U.S. benchmark, did jump more than 20% , but it now trades around $17 per barrel, which is far below the more than $60 it fetched at the beginning of the year. Amid this backdrop, New Constructs' CEO David Trainer said it's important to look for companies that have sold off simply because of weakness in the energy space broadly, rather than due to a company's underlying fundamentals. "Markets aren't sophisticated enough to appreciate which firms are really going to get hurt most by certain things," he told CNBC. Exxon and Chevron are among the names that look attractive since they will be able to weather the storm and emerge with more market share on the other side. "This is a great opportunity to buy at a really cheap price ... the market is not seeing through the dip," he said. Shares of Exxon have shed 40% this year, while Chevron is down 30%. The S & P 500, by comparison, has dropped 13%. Trainer also likes gas station operator Murphy USA , as well as refiner HollyFrontier Corp . "These are firms that play in the energy space, but they're not as dependent on the price of oil for success, because they're more of a middleman," he said. Energy-focused funds: For investors who might not have the time to drill down on individual companies' balance sheets, energy-focused ETFs and mutual funds can be a good option. "I always suggest ETFs over single stocks because you've got diversification and you're not playing idiosyncratic stories," John Davi, CIO and founder of Astoria Portfolio Advisors, told CNBC. While he himself is not bullish on energy, he noted that the Energy Select Sector SPDR Fund, which trades under the ticker 'XLE,' can give investors broad exposure to the sector. The fund's top holdings are Chevron, Exxon, Phillips 66 and ConocoPhillips. "It's big, it's liquid, it's $8 billion ... plus you can potentially get a substantially higher dividend yield compared to buying the S & P 500 index," Davi said. But overall he warned that the cyclical nature of the industry could limit upside. Trainer pointed to the First Trust Nasdaq Oil & Gas ETF, which trades under the ticker 'FTXN,' as a fund with concentrated positions in stocks he favors. The top holdings are Southwestern Energy, Kinder Morgan, OGE Energ