Hedge Funds' Best Picks Show the Way for 2012

Utilities

If there is one sector more boring that telecom, it's utilities. Though many are big dividend payers, there's little excitement in owning an electricity company. Making matters worse, the utility sector saw a meager 5% increase in earnings from a year ago, according to FactSet Research, the lowest growth rate of all 10 sectors of the S&P 500. Looking ahead, utilities are the only sector expected to see earnings shrink in 2012, with analysts' estimates calling for a 2% slide.

Despite those negatives, utility stocks have been the best performers this year on the S&P 500, climbing 10.7% in 2011 through Nov. 11. Boring and unsexy is much more palatable if it means getting a big return. However, hedge funds aren't making big changes to their exposure to the sector.

Louis Bacon's Moore Capital is one of very few funds to increase its portfolio weighting for the utility sector. During the third quarter, Moore Capital bought shares of PPL Corp.(PPL), Southern Company(SO) and Westar Energy(WR). The three stocks were mixed in the third quarter, with Southern up 5%, PPL up 2.5% and Westar down 1.8%.

On the other hand, Avenue Capital lowered its utilities holdings after dumping shares of Dynegy(DYN). The stock has fallen more than 50% this year,

-- Written by Robert Holmes in Boston.

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