The fund will invest in exchange-traded funds (ETFs) such as the United States Oil Fund Ltd (USO) that tracks oil prices, as well as in actively-managed energy funds such as the Vanguard Energy Fund Admiral Shares that use tools to hedge against downside risks, Lion said in a statement.

Chinese fund managers are rushing to roll out alternative investment products as domestic stocks and bonds lose appeal amid growing concerns over China's economic growth and stubborn inflation.

Three gold funds have been established in China this year while the country's first wine investment fund was launched this week, adding to a series of commodity-related funds that were designed to help investors fight inflation.

Lion's new fund, to be launched under the Qualified Domestic Institutional Investor (QDII) scheme next Monday, would invest at least 80 percent of its total assets in overseas energy-related products, including ETFs backed by oil and gas.

"The conventional wisdom is that commodity prices and the consumer price index move in the same direction, making commodities a good hedge against inflation," Lion said in the statement.

"There has been increasingly strong demand in China for commodity-related products as investors avoid risks in volatile stock and bond markets."

The oil and gas fund represents the latest innovative drive by Lion, which earlier this year launched China's first gold fund as well as the country's first fund that invests in overseas real estate investment trusts (REITs).

Lion's gold fund has generated a stellar 22.7 percent accumulative return since its January inception, outpacing all other Chinese mutual funds.

Its bigger rivals E Fund Management Co and Harvest followed suit with the launch of their own gold funds under the QDII scheme.

Copyright Reuters, 2010