Utility stock funds

slick

Im well aware that utility stocks are not what they used to be, I remember that my grandparents had a slug of them that consistently threw off 5% yield. It was like having a CD back then. Of course then there was the debacle with Enron. And others. However, the market seems to have flushed out many of the high risk high dividend stocks, and due to such meager bond returns, wonder why I have not seen any threads recently on some of the utility etfs or funds for ballast . I'm looking at MMUIX (Institutional version of MMUFX) for a very small portion of my portfolio. I have added energy MLPs, stocks and now looking at this to add some more conservative elements to my evolving portfolio.

Anyone else dabbling in this area?

Mark

If you're okay investing in CEF's you might take a peek at UTG Reeves Utilty Income Fund. Currently selling at a discount to its NAV (net asset value) and you'd double your yield.

I almost added this back during the last market meltdown but couldn't keep away from the ridiculous discounts in individual MLP's and some utility companies. I think the fund is well managed and I'd add it myself in the next correction unless the blue light specials in the MLP aisle are to hard to resist again.

fundalarm

i vote for UTG as well.

scott

I own Brookfield Infrastructure (BIP), which owns various infrastructure projects around the world, including some utilities. However, it is able to be opportunistic around the world, owning everything from rail in Australia to toll roads in Chile to utilities in UK and elsewhere. Long-term holding. It is an MLP, so it does generate a K-1 at tax time.

Old_Skeet

Hi Slick,

I have owned MMUFX, the A share version and have found it to have performed to my expectations. One of the reasons I no longer hold the fund is that utilities currently make up about a triple weighting for me within my portfolio as compared to the S&P 500 Index. It is my belief that it is one of the better utility funds available and one that I’d buy again if I was looking for a utility type fund.

Moving own to the MLP area … I recently came across a MLP open end fund that tracks the MLP Index and its ticker is ALERX. I have attached its fact sheet in case you’d like to take a closer look. It is a relative new fund so there is not much history on it. It does claim to be able to avoid the tax issues usually associated with owning MLPs directly.

http://www.alpsalerianmlp.com/documents/pdfs/alpsalerian-fs-20121231-3.pdf

I take it you are looking for yield along with some possible capital appreciation along the way. So are a lot of others, myself included. I wish you the very best in this search.

Skeeter

slick

Skeeter, thanks for your info. I do have AMLP, the ETF version I believe. Have started dollar cost averaging into it. Since it is my Roth, no worry about K-1 reporting. MMUIX does seem to have a wild side, but Im looking to maybe make a utility fund 2% or so of total.

Thanks to the others regarding UTG and BIP I will research it. I already have American Electric Power (AEP), but wanted a bit of diversification.

This constantly evolving portfolio is becoming a full time job, of course in the beginning when you are researching, buying and selling to create your own unique portfolio, it does take time. I am taking a sabbatical from work after March, for at least the spring and summer, not sure how long. Need time to reorganize house, visit with family and friends and travel. It has only been three months since I lost my spouse, need some down time. This forum is a great source of wonderful data, new ideas and kinships, thanks to you all, and of course to David and his staff.

Mark

No, thank you. Happy if we can help and wouldn't have it any other way.

msf

Let me offer a contrary view. Slick asked about funds that resemble the old (pre-1980 or so) equity income utility funds. These were funds that generated consistent, reliable income, and if you were lucky, maybe a smidgeon of growth. The reason was that traditionally utilities were heavily regulated. There was an understanding that in exchange for being allowed to operate a natural monopoly and be guaranteed a reasonable rate of return (regulated rates), the utility companies would operate in the public interest.

There's a fine writeup of the history of regulation in the first part of this 130 page guide to
Electricity Regulation in the US http://www.raponline.org/document/download/id/645

While most of the utilities that operated this way were gas and electric companies, there was also the American Telephone and Telegraph Company. Not only was Ma Bell required to provide universal service, but Bell Telephone Laboratories had to make its innovations available to the world.

Obviously, the telecom industry is completely changed and substantially unregulated now. But major portions of the electric and gas industries remain regulated. Funds that limit their scope to this section of the utilities market are not that different from the "traditional" utility funds of yore.

There are not many mutual funds like that any more. The one that I know of is Franklin Utilities (FRUAX for a no load, advisor class). Look at its portfolio (per M*): 90% utilities, with just a smattering in energy (7.5%) and communications (2.5%). M* writes that "its portfolio consists almost entirely of regulated domestic electric and natural gas utility stocks." The style box for this fund is off the scale on the value side.

Contrast that with MMUIX, which M* summaries with the headline: This is not your grandfather's utilities fund. Its style box is nearly into the blend region, holds barely half its value in utilities, with 1/4 in communications, and 1/6 in energy. Relative to other utility funds, M* says it has high risk. UTG, while having a more traditional value leaning, has a similar portfolio profile (1/2 in utilities, 3/10 in communications, 1/8 in energy). AMLP isn't even a utility fund, it's an energy fund (100% in energy companies, on the border of being a blend style fund).

Not that any of these are bad funds to own. Just that they are rather far from the traditional funds Slick was recollecting.

P.S. - UTG is a leveraged fund. Not where I would choose to be if I expected interest rates to rise significantly.

Many closed-ends use leverage and take other credit risks to generate such hefty distributions. If interest rates rise, however, or the economy falters, the funds' investments could shrivel in value.

Barron's: No Free Lunch in Closed-End Fundshttp://online.barrons.com/article/SB50001424053111904757804578032721106626626.html While the article is mostly talking about premiums on CEFs (UTG is trading at a discount), there's also risk to the NAV (not premium/discount) from the leveraging.

A primer on leveraged CEFs is provided by Blackrock: http://www2.blackrock.com/us/individual-investors/insight-education/investing-basics/a-look-at-leverage

Sven

Reply to @msf: Many thanks for detail background info. I have been research the same topic in helping my parents to diversify their income allocation.

slick

Thanks from me too MSF, I am pretty lucky in having a bond portion of my portfolio that is fairly stable in some munis that throw off 4.25% -5% that will last til 2016, first call date, but after that will be i the same boat as everyone else in scrambling for income that is relatively stable in available bond funds. In the meantime, I like dividend paying stocks, a diversified group of mutual funds (I now have 13, one more in utilities should be all i need for now if I decide to go that route) and etfs, mlps and cash/gold.

slick

Here's is what I decided to do: I put a stop loss on my American Electric Power at $43 which would lock in profits if that starts to go down. Bought equal amounts of MMUIX and FRUAX (I liked them both and was still a little light on energy, which MMUIX has a mix of). I will sell the AEP stock as it rises, but since I have a stop loss on it, not concerned about it going up After the sale I will have about 3% of my total in utilities.

As some have remarked, my portfolio does have a slight edge towards the aggressive side of moderation with biotech, tech and small cap growth exposure, but I have balanced it with gold (4%), cash (12% goal when Im finished buying), bonds and dividend paying stocks in most sectors. This 3% allocation to stodgy utilities should provide further ballast.

Thanks to all of you for your suggestions, links, education and advice.

BobC

One option I have not seen mentioned in this thread is GASFX. If the production and use of natural gas continues at its present pace, and I think it will, this fund could do very well. Yield of about 2.6%, low expenses, low turnover, low minimum investment. And the holdings are certainly not as rich as the typical utility fund. If you are looking for a more broad-based dividend play, GSRLX is an option. It has about 20% in master ltd partnerships that are gas pipelines. I would not want to be betting on the large, mostly coal-based utilities right now. Just something to think about.

slick

Bob, thanks for your input, its always appreciated. I am dollar cost averaging into AMLP for MLPs, and recently added Conoco Phillips and Valero, plus feel I have indirect additional coverage in that sector through my holding in Union Pacific Corp. I will keep those funds on my list for the future however

rono

Howdy all,

I too have been trying to figure out how to play this space and am still gear hunting. I recall when most every winter, the ute play was a winner. I tried this past year to ride the basic funds GASFX and UNG and didn't do that well. I was trying to play both and actually caught an upswing in the PoNG but didn't maximize the dividend side of it. Someone mentioned deregulation and that has removed some of the 'widows and orphans' allure for all the various utes. Indeed, whence they become derulgated, are they still technically utililities?

Regardless, where I have had some bit of fortune has been with playing my local utes via their common shares. I've had DTE and CMS for years.

They're both paying around 4% and recently added my telecom vendors T and FTR paying 5% and 8%, resp. Golly, if I can get someone I do business with that's also paying me a decent yield . . .

peace,

rono

MikeM

I bought some GASFX, actually when Ron brought it up last year. I though decided to keep it longer term, partnered with my PRNEX. Figured that was a good energy, NR and utility combination for inflation rise.