Utilities funds have given investors some shelter in this stormy year -- but we're talking about the pure types, not the cloaked telecom funds that shined last year.
A slew of utilities funds gorged themselves at the telecommunications-stock buffet last year, when the average telecom fund shot up more than 70%. But this year the phone funds are down more than 28% and those cheating utilities funds are taking a similar beating. The
Lindner Utility fund, for instance, has nearly half its assets in telecommunications stocks and only 16% of its money in stocks with a utilities label. It rose more than 60% last year and is down 13.1% this year.
Conversely, many of the more diversified utilities funds out there have stayed above water as energy prices have risen and skittish investors have flocked to the traditionally steady sector. This year the average utilities fund is up 4.7%, which sounds pretty tame but is tough to knock since the
is in the red.
While a utilities fund looks like an intriguing and somewhat all-weather addition to your portfolio, it's not a sleepy "widows and orphans," contrary to its sleepy reputation. Deregulation of electricity and other energy businesses has stoked competition and consolidation, morphing the sector into somewhat of a growthy area. And telecommunications, where many companies have dipped a toe into the lucrative but dicey bandwidth business has begun to play a big role in many utilities funds. Consider that the average utilities fund has less than half its money in utilities stocks, according to
But if you're in the market for a utilities fund, we've done some homework for you. We screened the category for funds that beat their average peer over the past one- and three-year periods. Here's a top-10 list, ranked by one-year returns. We've also sifted these leading funds' portfolios to see what stocks they're betting on, but first let's check out the funds.
No matter what type of investor you are, there's probably a fund or two on this list you'd like to check out. At the top, you'll find two index-tracking, no-load funds in
Galaxy II Utility Index and the
American Gas Index -- one of the fund industry's best fund names and tickers:
, pronounced "gas effects."
If you work with a broker, you've got broker-sold funds from
to choose from. There's also the
MFS Utilities fund, run by Maura Shaughnessy, whom many consider to be the guru of the group. For more on Shaughnessy's investment approach, check out
10 Questions interview. All of these broker-sold funds have had lower volatility than their average peer, according to Morningstar, but Shaughnessy's fund has been among the steadiest.
If you're a no-load investor looking for active management with lower relative risk, check out the
Vanguard Utilities Income fund. The fund typically only owns stocks that pay dividends, and while that approach has kept it behind its average peer-and off our list, it might make sense for conservative investors.
A more aggressive no-load option is the
Strong American Utilities fund, where the fund's management team tends to make big bets on its top 10. That can boost risk, but the fund beats its average peer over the past one-, three- and five-year periods, according to Morningstar.
Looking at what's driven these leading funds we find a cumulative top-10 list rightly dominated by utilities stocks like
El Paso Energy
But there is a telecom stock --
-- and two energy companies that are getting into the bandwidth business to provide businesses and consumers with Net access and data communications --
Something for everyone, just like the utilities fund pack.