This week several of the utility companies caught the National Arbor Day (April 27) spirit. Commonwealth Edison, a unit of
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,
, 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
Utilities Average has outpaced the broad-market
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
, 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
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:
, up 7.57%,
Magellan Midstream Partners
, up 5.03%, and
Enbridge Energy Partners
, 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
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
( TXU) and
The fund's best-performing holdings were
Northwest Natural Gas
, up 6.96%, and
New Jersey Resources Corp.
, 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.
At the other end of the power line is the
UltraShort Utilities ProShares
, 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
Gabelli Utility Trust (GUT). This closed-end fund took significant hits of -6.28% from
, -5.13% from
Capstone Turbine Corp
and -3.76% from
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.