NEW YORK (TheStreet) -- In recent months, investors have been pouring into shares of utilities and real estate investment trusts. The stocks pay rich dividends -- an important attraction at a time when many share prices have been flat. While the S&P 500 returned 0.8% this year, utilities funds returned 9.1% and real estate funds gained 5.9%, according to Morningstar.

Now some fund managers worry that the winning sectors are no longer bargains. The managers are emphasizing other industries or staying away from REITs and utilities altogether. "A lot of the best-performing stocks are priced near the higher end of their historical ranges," says Todd Lowenstein, portfolio manager of

HighMark Value Momentum


. "When the markets calm down, the expensive sectors will underperform."

Lowenstein is particularly concerned about utilities. Because they tend to be slow-growing businesses, utilities have traditionally sold for a price-earnings ratio that is 25% below the figure for the overall market. But these days, the sector has a forward P/E of 14, compared to a figure of 13 for the S&P 500.





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To obtain rich dividend income without relying on utilities, consider

Wasatch Strategic Income

(WASIX) - Get Report

. Like many equity-income funds, Wasatch aims to deliver income along with some capital gains. But Wasatch portfolio manager Samuel Stewart follows an unusual approach. Stewart holds a mix of dividend stocks, including big stakes in out-of-favor issues. He is willing to place sizable bets on cheap sectors and avoid rich ones altogether. His current portfolio has 42% of assets in unloved financials and none in utilities. In contrast, typical equity-income funds avoid big sector bets, preferring to hold a diversified mix of blue chips and high-quality bonds.

Most often Stewart's unorthodox strategy has worked. During the past five years, Wasatch has returned 0.7% annually, outdoing the S&P 500 by more than 1 percentage point. The fund yields 3.0%.

Stewart is currently avoiding equity REITs, which own portfolios of properties, such as offices and shopping malls. But he does like mortgage REITs, a small group that buys commercial mortgages. A favorite holding is

Colony Financial

(CLNY) - Get Report

, which yields 8.7%. The company can deliver an outsized yield because many of its mortgages are rated below-investment grade. Stewart says that the REIT was formed after the financial crisis of 2008 and purchased its mortgages at bargain prices.

Stewart is also keen on big technology companies. A favorite holding is chip giant


(INTC) - Get Report

, which yields 3.6% and has a P/E ratio of 10. While the price is low, the company has a rock-solid balance sheet and seems poised to show growth. "If you go back over the history of Intel, it's hard to find any time when the valuation was anywhere near as low as it is now," he says.

Another tightfisted income fund is

Columbia Dividend Opportunity

(INUTX) - Get Report

. During the past five years, the fund has returned 1.4% annually, outdoing 93% of large value funds. Columbia's portfolio managers look for unloved stocks that can increase their dividends. These days the fund is underweighting REITs. "During this year, REIT valuations have gotten stretched," says portfolio manager Paul Stocking.

Stocking likes energy shares. Energy funds have been one of the worst performers this year, losing 8.5%. The stocks have suffered as investors worried that the global economy would slow and reduce the demand for oil. Stocking argues that the fears of a slowdown are overdone. In recent months, demand for oil has remained strong. "Even when people were concerned about a double-dip recession in the U.S., energy prices remained at fairly high levels," he says.

A favorite holding is oil giant


(CVX) - Get Report

, which yields 3.1%. The company has increased its dividend at a 10% annual rate for the last five years.

Stocking also likes

General Electric

(GE) - Get Report

, which yields 3.9%. During the financial crisis, the company slashed its dividend. But in the last year and half, the business has improved, and General Electric has raised its dividend three times. Stocking says the company is overcoming problems in the

GE Capital

unit, and the business is poised to deliver solid growth.

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Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.