Janus Goes Global to Find Values, but You Don't Have to Come Along
Ill Communications: Telecom Fund Survivors
Don't Give Up on Mutual Funds
How to Build a Diversified Fund Portfolio
Beware the New Wave of Value Funds
The Big Screen: Tech Funds
The Big Screen: Bond Funds
Lessons From the Fall: A Special Fund Junkie Report
When you picture computer-chip factories gone dark and programmers scribbling code on paper by candlelight in Silicon Valley, it's easy to see why utilities funds might be worth a look. So, let's look at them.
Historically known as the domain of sleepy, dividend-paying power shops held by skittish "widows and orphans," utilities funds have quietly changed quite a bit. Given the enticing opportunities among telecom shops building out the Internet and offering Net access to their phone-service customers, the average utilities fund only has about 55% of its money in "utilities," according to
. The rest is spread among telecom, energy and tech shares.
Despite their sometimes racier style, however, they can still offer investors a safe port when highfliers tumble. In 2000, for instance, the average utilities fund gained 7.3%, compared to a 9.1% loss for the
and a nearly 40% fall for the tech-laden
Though these funds are down more than 7% over the past 12 months, on average, that's still less than half the S&P 500's loss, according to Morningstar. The category tops the S&P 500 over the past three years and looks pretty competitive over the past five- and 10-year stretches, too.
Adding a utilities fund to a
diversified portfolio can both boost returns and reduce risk. Consider that adding a 10% allocation to the
Vanguard 500 Index fund would lead to higher returns over the past one- and five-year periods. The added utilities exposure also lowers the portfolio's worst one-year loss and drops its beta, a measure of a portfolio's volatility vs. the S&P 500.
Though there are 36 utilities funds out there, choosing one isn't easy. In 1999 those with the highest performance topped the charts by loading up on frothy tech and telecom shares, but those same funds have ridden their faves down ever since. Consider the
Lindner Utility fund, which rang up a category-leading 60.5% gain in 1999, but is down more than 40% over the past 12 months.
To find steadier fare, we sifted the category for those funds that beat their average peer over the past one- and three-year periods with the same manager at the helm. We then yanked out any fund with annual expenses north of the category's 1.44% average. That left us with four survivors. Let's check them out and then look at a pair of solid funds that slipped through our net.
At the top of our list you'll find one of the best fund names and tickers out there: the
American Gas Index fund --ticker GASFX. The no-load fund tracks the
American Gas Association Index
, a basket of 82 companies in the natural-gas business. Thanks to high natural-gas prices, the fund has performed well in recent years and beats its average peer over the past one-, three-, five- and 10-year periods.
But for most investors, the fund's narrow focus probably makes it a must-miss. Consider that it can be far out of favor just as easily as it can be in the sector's sweet spot. The fund trailed at least 70% of its peers in 1997, 1998 and 1999.
Strong American Utilities fund might be a good fit for conservative investors. The fund's long-tenured management team at utilities specialist
focuses on companies with cheap valuations that have consistently raised their dividend payments. As you might imagine, that style leads to a portfolio laden with gas and electric company shares. The fund typically steers clear of telecom shops and that's helped the fund top at least 80% of its peers over the past one-, three- and five-year periods.
If you're looking for a more diversified portfolio that includes telecom shares, you might consider the broker-sold
AXP Utilities Income and
Merrill Lynch Utilities & Telecommunications funds. Bern Fleming, manager of the AXP fund since 1995, and Walter Rogers, manager of the Merrill fund since its 1990, both spread their funds' money broadly around the sector. Despite exposure to the currently sick telecom industry, both have topped their peers over the past one-, three- and five-year periods.
In addition to these funds, you might want to check out a couple of other funds that offer broad access to the sector: The
MFS Utilities fund and the
Prudential Utilities fund.
Maura Shaughnessy has run the broker-sold MFS fund since its 1992 inception, spreading her fund's assets among gas, electric, telecom and water utilities shares. The fund's 17.9% five-year annualized gain tops all utilities funds and the fund only missed our cut because its 10.8% loss over the last 12 months lags its average peer. While this might give you pause, Shaughnessy's sterling long-term record merits attention.
It appears the Prudential Utilities fund, skippered by lead manager David Kiefer since 1994, deserves a look too. Without making outsize bets on a single subsector or company, Kiefer has kept the fund ahead of at least 80% of its peers over the past one-, three- and five-year periods. Why didn't it make our list? Two co-managers, Eric Philo and Shaun Hong, joined Kiefer at the helm last year, resetting the fund's management tenure in Morningstar.com's database.
If you see dimming lights and rising power prices as an opportunity, those are some funds that are positioned to profit.
Fund Junkie runs every Monday and Wednesday, as well as occasional dispatches. Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
email@example.com, but he cannot give specific financial advice.