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TheStreet.com Ratings: Best, Worst Utility Funds

This week several of the utility companies caught the National Arbor Day (April 27) spirit. Commonwealth Edison, a unit of Exelon (EXC - Get Report) and the largest utility in Illinois, is encouraging tree-planting. Short trees such as dogwoods or crabapples that stay under 20 feet tall are preferred by ComEd to avoid power-line damage, of course.

Also, in honor of Arbor Day, Consolidated Edison (ED - Get Report), which serves New York City, is promoting paperless billing.

But the utilities had more than just Arbor Day to be excited about this week. The Dow Jones Utilities Average has outpaced the broad-market S&P 500 index 16.40% to 5.94% year to date and 2.31% to 1.62% for the week ending Thursday, April 26. The utility sector mutual funds we track gained 1.55% over the last five trading days.

With solid first-quarter earnings coming in, these utilities are showing that escalating energy prices can be profitably passed through to customers. This allows the companies to continue paying high dividends to their shareholders.

Topping the best-performing list this week is the Ultra Utilities ProShares (UPW), which tracks twice the daily return of the Dow Jones U.S. Utilities Index. The fund powered its way to a return of 4.56% for the five trading days ending April 26.

Hitting a new 52-week high, the (MFD - Get Report) Macquarie/First Trust Global Infrastructure/Utilities Dividend & Income Fund (MFD) gained 4.19%. Only 10.6% of its assets are in the U.S., with 33.2% in the U.K., 21.8% in Australia, 15.1% in Canada and 8.7% in Italy. By sector, the highest concentration is water with 31.7%, followed by electricity with 21.5%, gas at 10.3% and commercial services at 10.2%.

Macquarie's three best-performing stocks were all American: Amerigas Partners (APU - Get Report), up 7.57%, Magellan Midstream Partners (MMP), up 5.03%, and Enbridge Energy Partners (EEP), up 4.09%.

Amerigas, the largest U.S. propane retailer, improved its quarterly distribution by 5%, bringing its indicated dividend yield to 6.60%. Magellan also announced another boost in a long series of quarterly dividend increases this week.

In third place is (UTPSX) ProFunds Utilities UltraSector ProFund (UTPSX), which tracks 1.5 times the daily return of the Dow Jones U.S. Utilities Index. This fund is made up of 86.1% electric, 9.5% gas, 0.6% water, and 0.4% environmental control stocks. All the holdings are U.S. companies, with the largest being Exelon (EXC - Get Report), Duke Energy (DUK), TXU Corp (TXU) and Dominion Resources (D).

The fund's best-performing holdings were Northwest Natural Gas (NWN - Get Report), up 6.96%, and New Jersey Resources Corp. (NJR), up 6.81%. This week, Northwest Natural Gas beat first-quarter earnings estimates, enlarged its share-buyback program and claimed an unbroken streak of 51 consecutive years of dividend increases. New Jersey Resources announced a positive earnings surprise and raised full-year guidance.

Both Ultra Utilities and ProFunds Utilities track the same utility index. But on top of the higher leverage, the exchange-traded fund structure of Ultra Utilities has advantages over ProFunds. Ultra only charges a 0.95% expense ratio. On the other hand, the open-end fund, the ProFunds one, charges a 2.48% expense ratio, 1.00% for the 12b1 fee and a 0.75% management fee. In an up utility market, Ultra should always outperform ProFunds. If utilities plummet, you may lose a little less in ProFunds.

Best-Performing Utility Funds
Name (Ticker) Rating Fund Type 1 Week Total Return
Ultra Utilities ProShares (UPW) U ETF 4.56%
Macquarie/First Trust Gbl Infra/Util Div & Inc (MFD) B Closed-End 4.19%
ProFunds Utilities UltraSector Profund (UTPSX) A- Open-End 3.18%
Cohen & Steers Select Utility Fund Inc. (UTF) B+ Closed-End 3.13%
Utilities HOLDRs Trust (UTH) A ETF 2.62%
Flex-funds - The Total Return Utilities Fund (FLRUX) A+ Open-End 2.58%
AIM Utilities Fund (FSTUX) A+ Open-End 2.22%
Utilities Select Sector SPDR Fund (XLU) A+ ETF 2.21%
Vanguard Utilities ETF (VPU) A+ ETF 2.21%
Vanguard Utilities Index Fund (VUIAX) U Open-End 2.20%
Source: Bloomberg

At the other end of the power line is the UltraShort Utilities ProShares (SDP), which sinks twice as much as the Dow Jones U.S. Utilities Index rises; it lost 4.10%. This fund has been stuck on the wrong side of the bullish utility market and has never risen above its initial price at inception.

The other utility fund absorbing a notable loss, this one of 1.98%, is the (GUT) Gabelli Utility Trust (GUT). This closed-end fund took significant hits of -6.28% from D&E Communications (DECC), -5.13% from Capstone Turbine Corp (CPST) and -3.76% from SJW Corp (SJW).

Worst-Performing Utility Funds
Name (Ticker) Rating Fund Type 1 Week Total Return
UltraShort Utilities ProShares (SDP) U ETF -4.10%
Gabelli Utility Trust (GUT) C+ Closed-End -1.98%
WisdomTree International Utilities Sector Fund (DBU) U ETF -0.45%
Evergreen Utilities and High Income Fund (ERH) B+ Closed-End -0.28%
DNP Select Income Fund Inc (DNP) C Closed-End 0.40%
Gartmore Global Utilities Fund/United States (GGUAX) B Open-End 0.70%
Fidelity Utilities Fund (FIUIX) A+ Open-End 0.81%
Evergreen Utility and Telecommunications Fund (EVUAX) A+ Open-End 0.86%
First Investors Value Fund (FIUTX) B Open-End 0.97%
SPDR FTSE Macquarie Global Infrastructure 100 ETF (GII) U ETF 1.07%
Source: Bloomberg

Friday's Commerce Department report of 1.3% annual GDP growth may induce investors to seek the relative safety of utility funds to hide assets from the shakiness of the overall economy. We expect homeowners to keep paying their electric bills and utilities to sustain or raise dividends.

Add to that long-term factors, such as the rebuilding of the power grid to account for population growth and plug-in electric hybrid vehicles, and that makes utilities an important part of a well-diversified portfolio.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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