Ronald Sorenson, manager of the Reaves Utility Income Fund ( UTG), says he's focusing on utilities with the best potential to benefit from low interest rates and economic stimulus programs. They include AT&T ( T), ITC Holdings ( ITC) and American Water Works ( AWK).

"Electric utilities, the largest concentration in our portfolio, came roaring back last week, and telephones did well too," Sorenson says. His closed end fund gained 12% in the five trading days ending Thursday, topping the average utility fund, which rose 8.2%.

Sorenson's firm, W.H. Reaves & Co., founded by William Reaves in 1961, specializes in utility research. His fund invests in telephone, gas, electric and water companies, which continue to boost earnings and generate dividends.

"Which would you rather have, shares of AT&T, which raised its dividend twice in the last year, has huge cash flow and an attractive 6.3% dividend yield or 10-year Treasury bonds yielding 2.6%?" he says.

Sorenson says the telecommunications provider might benefit from the Federal Reserve's efforts to keep interest rates low. The more interest rates decline, the better utilities look.

He has also been targeting companies poised to benefit from President Barack Obama's economic stimulus plan. The effort aims to improve the country's power and water infrastructure, and increase access to broadband communications services. He owns shares of electricity provider ITC Holdings, which rose 13% last week, and American Water Works, a water utility that surged 10%.

The Reaves Utility Income Fund's best-performing holding last week, General Maritime ( GMR), sailed ahead by 22%. General Maritime, which transports crude oil, will likely generate sizable dividends in the coming years, Sorenson says.

The Dow Jones Utilities Average rallied last week, climbing 9.7%, tripling the rebound of the Dow Jones Industrial Average, which tracks 30 of the country's biggest companies.

The ProShares Ultra Utilities Fund ( UPW) and ProFunds Utilities UltraSector ProFund ( UTPSX) were the best-performing funds of the group with returns of 22% and 16%, respectively. They're designed to track the performance of the Dow Jones U.S. Utilities Index by 200% and 150%. A team led by William Seale and George Foster manages the funds.

The utility index's best-performing holding, PNM Resources ( PNM), climbed 33%. Other large gainers include Dynegy ( DYN), which rose 31%, and Energen ( EGN), up 21%

Best-Performing Utility Funds for the Week
Ending Thursday, March 19
Fund Ticker Rating Fund Type 1 Week Total Return
ProShares Ultra Utilities UPW E ETF 21.60%
ProFunds Utilities UltraSector Profund UTPSX D+ Open-End 15.60%
Macquarie/FT Global Infrastructure/Utilities Div & Inc MFD C- Closed-End 15.60%
Cohen & Steers Select Utility Fund Inc UTF C- Closed-End 13.99%
Reaves Utility Income Fund UTG C- Closed-End 11.82%
DNP Select Income Fund Inc DNP C Closed-End 10.84%
Utilities Select Sector SPDR Fund XLU B- ETF 10.77%
iShares Dow Jones US Utilities Sector Index Fund IDU B- ETF 10.58%
Vanguard Utilities ETF VPU B- ETF 10.45%
Utilities HOLDRs Trust UTH B- ETF 10.29%
Vanguard Utilities Index Fund VUIAX B+ Open-End 10.20%
FBR Gas Utility Index Fund GASFX B+ Open-End 9.82%
Rydex Series - Utilities Fund RYUIX B+ Open-End 9.69%
Gabelli Global Utility & Income Trust GLU C+ Closed-End 9.51%
PowerShares FTSE RAFI Utilities Sector Portfolio PRFU C ETF 9.48%
First Trust Utilities AlphaDEX Fund FXU D ETF 9.39%
Fidelity Advisor Utilities Fund FAUFX B+ Open-End 9.31%
Fidelity Select Utilities Portfolio FSUTX B Open-End 9.31%
Franklin Utilities Fund FKUTX A- Open-End 9.13%
American Century Utilities Fund BULIX B+ Open-End 8.97%
PowerShares Dynamic Utilities Portfolio PUI B- ETF 8.94%
Rydex S&P Equal Weight Utilities ETF RYU D ETF 8.92%
AIM Utilities Fund FSTUX B+ Open-End 8.90%
Van Kampen Utility Fund VKUAX B+ Open-End 8.78%
Gabelli Utilities Fund GAUAX B+ Open-End 8.64%
Source: Bloomberg & TheStreet.com Ratings

For more information, check out an explanation of our ratings.

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.

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