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I don't know. If there is a bond fund that returned 7.84 over the last 15 years, and 10% over the last three years, like FSUTX has, I'ld like to know the name of it.
Interest-sensitive equities (utilities, REITs, dividend-paying stocks) are often called bond-proxies. I don't think that words such as surrogates or substitutes are appropriate for this. Contrast this with growth that is doing gangbusters this year.
Last year was especially bad for hybrids because many tend to have dividend-oriented equities and, of course, bonds. So, rapidly rising rates were a double whammy for these.
I just heard someone on CNBC say that utilities are simply a surrogate for bonds. Agree or disagree?
Tend to disagree
But in the 80s, 90s and earlier utilities were quite tightly correlated with bonds. The conventional wisdom than was that utilities financed their expensive infrastructure with large amounts of borrowing. When rates fell (and bonds rose) so did utilities because their debt became less expensive. That may still be true. But watch the holdings of individual funds today to be sure they haven’t expanded “utilities” to include tech companies, energy companies, streaming and the like. Might not behave as they did prior to the 90s. And there have been big regulatory changes since those days.
Giroux spoke favorably of utilities in the recent Barron’s article. But I can’t remember when he didn’t like them. I’ve learned to like them over time and have modest exposure in my portfolio. Tend to be more stable than overall market. If the CNBC speaker meant to imply a degree of stability in comparing utilities to bonds I’d agree with that. And yes, they tend to pay high dividends.
I’ve checked and it looks like both Fidelity and Franklin offer top rated utilities funds and that those 2 focus more on traditional utilities sectors.
On a recent Wealth Track, David Giroux said "I think people are going to make a ton opf money in Utilities", and he recommended moving money from Consumer Staples into utilities. If I remember correctly he highlighted Next Era Energy as one of several Utilities that may have bonus appeal surrounding the conversion to green energy.
Whoever it was on CNBC was very bullish on equities in general and felt that Utilities were not the ideal place to be.
On a recent Wealth Track, David Giroux said "I think people are going to make a ton opf money in Utilities", and he recommended moving money from Consumer Staples into utilities. If I remember correctly he highlighted Next Era Energy as one of several Utilities that may have bonus appeal surrounding the conversion to green energy.
Whoever it was on CNBC was very bullish on equities in general and felt that Utilities were not the ideal place to be.
My utility preferreds are doing quite nicely as QDI portfolio ballast. No complaints here!
Hank is right in drawing a distinction between the years up to the mid 90s and the time since then. Though I would say that the key difference between then and now is regulation.
Utilities were heavily regulated, vertically integrated companies. Electric utility companies combined power generation with transmission and distribution. Ma Bell designed its own equipment (Bell Labs) and manufactured it (Western Electric) under the 1956 consent decree.
Under regulation, utility companies were granted monopolies and guaranteed a fair rate of return. They were cash cows, very much like bonds with steady payments.
[Through the early 1990s] most public utilities were regulated monopolies. They were guaranteed a fair rate of return, based on their capital investment and costs. ...
in the old days of regulation, a utility like Con Ed would be required to regularly submit a resource plan to a state's public service commission. The two organizations would forecast demand and decide how much money should be invested in power plants and transmission lines. Rates would be adjusted to cover costs. Under deregulation, however, nobody plays that crucial planning role.
A quick look at GRID (First Trust Clean Edge®Smart Grid Infrastructure ETF) shows 17% utilities as well as many industrial and tech companies that stand to benefit from what Giroux is talking about, namely the conversion to green energy. GRID does not hold New Era, but it does hold a number of overseas utilities as part of the fund's some 47% allocation to ex-US firms. PRWCX has no more than 4% non-US, so I assume Giroux is talking about finding value in US utilities.
I happened to be window-shopping for Utes just a couple of nights ago. The P/E on the ones I saw (traditional style, highly regulated) were way too rich. I think the moment has passed. Anecdotally, Hawaiian Electric here is not an independent company; it's owned by American Savings Bank. That's just weird. ... The electric utility back East where we lived is one of those I love to hate. Now very recently, I see on the local news website that they are reducing their rates. Will wonders never cease? I will believe it when I see it reported that the reduction actually did take place. (Eversource.)
A quick look at GRID (First Trust Clean Edge®Smart Grid Infrastructure ETF) shows 17% utilities as well as many industrial and tech companies that stand to benefit from what Giroux is talking about, namely the conversion to green energy. GRID does not hold New Era, but it does hold a number of overseas utilities as part of the fund's some 47% allocation to ex-US firms. PRWCX has no more than 4% non-US, so I assume Giroux is talking about finding value in US utilities.
Brookfield is doing a lot in the green energy / conversion space. BEP, BEPH, BEPI are some to consider depending on your tax situation. Their infrastructure entity BIP/BIPC are involved in this process as well.
I think many utes will be a solid if not boring play going forward due to the EV trend and fact that folks need reliable power. I'll be interested in adding names when they're paying out 4% or more dividends. (Well, except for D, which couldn't find its way out of a paper bag when it comes to management decisionmaking.)
The P/E on the ones I saw (traditional style, highly regulated) were way too rich. Hawaiian Electric here is not an independent company; it's owned by American Savings Bank. That's just weird
You may have the hierarchy upside down. HE owns American Savings Bank. From BofA Global Research:
Reiterate Underperform on shares of Hawaiian Electric (HE) which is expensive relative to our view of the fundamentals and deserves to trade at a discount to utility peers due to its banking exposure. HE owns American Savings Bank (ASB),
It's difficult if not impossible to find a pure play in traditional, regulated utilities. The BofA excerpt implies that the utility subsidiary is doing just fine thank you, but HE is getting dragged down by its non-utility subsidiary.
M* gets the company structure wrong or at least misleading in writing that HE is 3/4 electric utility company and 1/4 bank. That suggests that it's 3/4 regulated. It's not. Apparently what M* is calling an electric company consists of two HE subsidiaries, Hawaii Electric (a traditional, regulated utility) and Pacific Current.
Pacific Current President Scott Valentino, described the subsidiary as a “Hawaii-centric non-regulated entity that invests and develops in a broad range of infrastructure.” ... “Everything we own today is related to electricity, but we are looking for opportunities in transportation, water, agriculture and other sectors,” Valentino said.
According to Valentino, a sustainable future for Hawaii does not just lie in one sector alone.
“We are focused on the betterment of Hawaii overall, but we are really focused on accelerating the 100 percent renewable portfolio standard, and carbon neutrality across the sectors,” he said. ... Valentino said that Pacific Current is considered a “real growth vehicle for HEI moving forward”
That seems more along the lines that Giroux was talking about, and it's unregulated.
Side note: M*'s economic moat analysis of HE is, to quote you, "just weird". It talks about how the utility portion is a monopoly and yet describes this as a "narrow moat". Apparently to M* "moat" doesn't mean so much a competitive advantage (such as being a monopoly) as it means being able to sustain excess ROI (which regulation tamps down). https://www.morningstar.com/investing-definitions/economic-moat
The best suggestion of a specific fund I’ve received (for my needs) from this board came from @BenWP a couple + years ago. That’s GLFOX. It’s the first new fund I purchased after moving to Fido’s brokerage. Thanks Ben. It is technically an infrastructure fund. M* lists it as slightly over 50% utilities. Most of the holdings are X-USA (primarily Europe), which partially explains an ER north of 1%. The fund isn’t for everyone. And, as noted, isn’t a “utilities” fund. You can probably find better infrastructure or utility funds depending on your needs for a portfolio fit - especially how much foreign exposure you need or want.
Lazzard, itself is a giant in the global investment banking business. There’s been upheaval at the top with a new CEO in recent months. Like most of the big houses, there’s cost-cutting going on. I read somewhere there’s a soft close on institutional ownership of GLFOX, but that it is still open to individual investors. Strikes me as opposite what T. Rowe is doing by closing PRWCX but allowing those with hefty initial investments in.
Of course, Fido’s “Select Utilities” (FSUTX) with a lower .74% ER is a star performer in utilities.
The era of growth-utilities (unregulated) started in 1980s and has now picked up steam with alternate energy. If you want to trace developments in this industry, check the history of Vanguard VWINX benchmark changes - it started with a very simple idea, utility stocks + long-term bonds. The VWINX today is far different from that.
Even with phones, I do have landline but AT&T pushed for "attractive" Uverse bundles (landline, wireless, Internet, TV). I settled only for Internet + landline Uverse. When the technician was here years ago, I asked him what's the catch? He said, after saying that he isn't really supposed to be telling this, but conventional landlines, that are also powered by AT&T at low voltage (so, it worked even when power went out) is a "regulated" business and AT&T wants to move people to "unregulated" Uverse. OK, so if the power goes out now, so goes down the Uverse, and the landline with it. But as I have wireless phone (T-Mobile), I am not worried about being cutoff from the world - until the cell tower goes down. And if both the power and cell towers are down, there must be some bigger problem.
Cellphone towers can get overwhelmed during disasters, whether natural or manmade. Landline service is designed to prioritize emergency calls, drop inbound calls if they can't be completed, and queue dial tone so that one can still call out. And it works.
Unfortunately, my local phone company (these days, that's an oxymoron) refuses to provide copper wire service.
Regarding power and other Plain Old Telephone Service (POTS) features, see BORSCHT.
Your description of VWINX sounds similar to what was originally Fidelity Utilities Income Fund (now FIUIX). A bond-ish fund, Adjustable-Rate Preferred Portfolio, was even merged into this fund in 1991.
Where I am we had a 1950s era phone “landline”. After a few days of heavy rain it would sometimes go out for several days. Not sure where the problem was. Possibly in a buried cable to home. Cellular reception is poor here. For home service I use a cellphone connected to outside cellular antenna / cell phone booster for regular home service. The booster runs on electric, so it would be hard (but not impossible) to get a call out in event of power failure. (Than, there’s the portable gas powered generator to fall back on.) But most days the $25 / month cellular from Visible (Verizon) performs very reliably.
I don’t think it takes a rocket scientist to see the advantages to a “utility” in providing tower service rather than in ground cable. Many technologies become outdated in 5-10 years. “Hard” lines (pole or buried) would be a lot more expensive, ISTM, for them to upgrade than upgrading their towers - especially if burring cable to home.
I suspect in another 10-20 years a whole lot of this stuff (maybe all) will be space based, as satellites are becoming more advanced, lighter and less expensive to launch by the day. I never thought I’d see wireless charging. But it’s here - for some devices anyways. One of the networks featured an in-production solar powered car on its Thursday newscast. Three wheeled. A slight problem is having to run a zig-zag pattern to get up any hills. And they didn’t comment on how well it works at night.
Just to wrap up several recent themes . . . I added a 2022 column to one of the views in my legacy portfolio manager just to keep track of who did what in that awful year. Utilities and consumer defensive were winners for me that year when bonds were getting trounced. That may not make them bond surrogates, but maybe a hedge?
@yogibearbull: We had to choose the AT&T bundle because we are far enough away from a main street to have to rely on a buried copper cable for all our connectivity. Comcast is in town but would have charged us big bucks to lay a cable 2/10th of a mile to our house. Dish antenna we tried 15 years ago was spotty for TV; that may have improved with AT&T's takeover. AT&T prefers to sell dish service as opposed to copper wire because its more profitable. We could drop the landline, but my wife uses it as often as her cell phone. Don't get me started on price increases for our services over the past decade.
Through 2022, we increased "defensive" allocation including utility, consumer staples and health care (all ETFs). They are a hedge against a bad case of recession. so far, healthcare held up the best and utility lags the other two ETFs. I do not consider these stock ETFs are substitutes for bonds since they are different animals.
GLOFX is in our radar, but we need to sell something to make room for this fund.
Through 2022, we increased "defensive" allocation including utility, consumer staples and health care (all ETFs). They are a hedge against a bad case of recession. so far, healthcare held up the best and utility lags the other two ETFs. I do not consider these stock ETFs are substitutes for bonds since they are different animals.
GLOFX is in our radar, but we need to sell something to make room for this fund.
If you are at Fidelity you can step up to the institutional class for their standard fee, and save yourself .25 on the ER. It makes a big difference since a lot of the return comes from cap gains and dividends.
GLIFX - $10K min in Fido IRAs, $100K min in taxable accounts.
At Schwab, the min is $2,500, but you don't have Fidelity's trick of paying $5 for additional shares. (OTOH, some people claim to have gotten Schwab to waive its TFs.)
At Vanguard, min is $10K (IRA or taxable), but $20 TF for both purchases and sales. (Limited number of waivers for Flagship customers.)
At Firstrade and at E*Trade, min is $10K (IRA or taxable), no TF.
Have you guys looked at PG&E (PCG) stock price? By far the best 1 year chart I know. I sold out at $16, not believing it has left behind its legacy troubles, but now it is at $18. I probably should have kept it, given how my bills from them only go up. It does not pay a dividend yet and has a P/E ratio of about 20. I think it is the largest weighting in Third Point portfolio. Would like to get your comments on its prospects as an investment.
@BaluBalu, was a customer for many years. Given the number of years they did not spend money on upgrades they raised rates to pay for, I'ld say you made the right choice. Sometimes making money is selling "too soon."
Thanks @msf .25 BP difference! That’s significant. I recently ramped up GLFOX so it is well over the 10K minimum for IRAs. But probably need to wait near 60 days to make the move. Chances Fido might grant an exemption probably slim … than there’s the additional question of frequent trading at Lazzard if I do it too soon.
OK - I reread @msf’s post. Looks like with over 10K at Fido you can get the reduced ER on GLFOX / GLFIX. Do you know what the initial investment in GLFIX might be? I probably could start moving a sizable chunk Monday. For GLFOX Fido’s minimum is $2500.
Ask Fidelity to convert the GLFOX shares GLFIX. Assuming that Lazard will allow it, the transaction should go through without a transaction fee since you're not buying shares, just converting them. (I've done this type of transaction a couple of times at Fidelity.)
Likewise, it may not count as a sale (60 day NTF restriction) since you're not selling the shares. But check with Fidelity to be sure.
And it was @WABAC who highlighted the 25 basis point savings.
Thank you @msf. Will give it a shot! And thanks @WABC for sharing that.
I haven’t said much about this one because I was hoping it wouldn’t achieve the type of “celebratory status” everything Mr. Giroux touches enjoys. Two very different approaches for sure.
Re: (“I've done this type of transaction a couple of times at Fidelity”.)
I won’t feel badly if it doesn’t work. But with 100% now at Fidelity, they might be willing to budge a bit. My greater concern isn’t so much the 25 BP - but just getting this set up before something changes in the rules governing these funds.
Question Has anybody other than myself , received a power billing stating for only $3-$4 more per bill you could support "green energy" ? Only green energy in use here, solar lights ! The best green energy that we had was a ash tree that shaded the house & AC unit ! ASH Borer did it in !!
de nada @hank. FYI I sold GLFOX the same day I bought GLFIX, so you shouldn't have any problems.
Having delved into this with some test buys at Fido, the only problem I see is that GLFOX is NTF while GLIFX carries Fido’s customary $49.99 transaction fee. Assuming an initial purchase can be done thru conversion / other no-fee process, that still leaves one a bit restricted if buying additional shares in the future. (Just trying to cover all the bases.)
The Automatic Investment program allows purchasing additional shares for $5 at Fidelity. IIRC, this can be setup to make a single purchase. Automatic Investment is listed in GLFIX Transaction Fee footnotes (click Additional Important Information). It's probably best to contact Fido directly to confirm program availability.
Comments
Last year was especially bad for hybrids because many tend to have dividend-oriented equities and, of course, bonds. So, rapidly rising rates were a double whammy for these.
But in the 80s, 90s and earlier utilities were quite tightly correlated with bonds. The conventional wisdom than was that utilities financed their expensive infrastructure with large amounts of borrowing. When rates fell (and bonds rose) so did utilities because their debt became less expensive. That may still be true. But watch the holdings of individual funds today to be sure they haven’t expanded “utilities” to include tech companies, energy companies, streaming and the like. Might not behave as they did prior to the 90s. And there have been big regulatory changes since those days.
Giroux spoke favorably of utilities in the recent Barron’s article. But I can’t remember when he didn’t like them. I’ve learned to like them over time and have modest exposure in my portfolio. Tend to be more stable than overall market. If the CNBC speaker meant to imply a degree of stability in comparing utilities to bonds I’d agree with that. And yes, they tend to pay high dividends.
I’ve checked and it looks like both Fidelity and Franklin offer top rated utilities funds and that those
2 focus more on traditional utilities sectors.
Whoever it was on CNBC was very bullish on equities in general and felt that Utilities were not the ideal place to be.
Utilities were heavily regulated, vertically integrated companies. Electric utility companies combined power generation with transmission and distribution. Ma Bell designed its own equipment (Bell Labs) and manufactured it (Western Electric) under the 1956 consent decree.
Under regulation, utility companies were granted monopolies and guaranteed a fair rate of return. They were cash cows, very much like bonds with steady payments. https://www.nytimes.com/2003/08/16/opinion/the-day-the-lights-went-out-an-industry-trapped-by-a-theory.html
https://www.morningstar.com/stocks/xnys/es/quote
https://www.morningstar.com/stocks/xnys/he/quote
I think many utes will be a solid if not boring play going forward due to the EV trend and fact that folks need reliable power. I'll be interested in adding names when they're paying out 4% or more dividends. (Well, except for D, which couldn't find its way out of a paper bag when it comes to management decisionmaking.)
Hawaiian Electric here is not an independent company; it's owned by American Savings Bank. That's just weird
You may have the hierarchy upside down. HE owns American Savings Bank. From BofA Global Research: https://rsch.baml.com/access?q=KIjGPJuiY!I
It's difficult if not impossible to find a pure play in traditional, regulated utilities. The BofA excerpt implies that the utility subsidiary is doing just fine thank you, but HE is getting dragged down by its non-utility subsidiary.
M* gets the company structure wrong or at least misleading in writing that HE is 3/4 electric utility company and 1/4 bank. That suggests that it's 3/4 regulated. It's not. Apparently what M* is calling an electric company consists of two HE subsidiaries, Hawaii Electric (a traditional, regulated utility) and Pacific Current. https://www.bizjournals.com/pacific/news/2019/05/10/pacific-current-plans-to-invest-in-sustainability.html
That seems more along the lines that Giroux was talking about, and it's unregulated.
Side note: M*'s economic moat analysis of HE is, to quote you, "just weird". It talks about how the utility portion is a monopoly and yet describes this as a "narrow moat". Apparently to M* "moat" doesn't mean so much a competitive advantage (such as being a monopoly) as it means being able to sustain excess ROI (which regulation tamps down).
https://www.morningstar.com/investing-definitions/economic-moat
Lazzard, itself is a giant in the global investment banking business. There’s been upheaval at the top with a new CEO in recent months. Like most of the big houses, there’s cost-cutting going on. I read somewhere there’s a soft close on institutional ownership of GLFOX, but that it is still open to individual investors. Strikes me as opposite what T. Rowe is doing by closing PRWCX but allowing those with hefty initial investments in.
Of course, Fido’s “Select Utilities” (FSUTX) with a lower .74% ER is a star performer in utilities.
Even with phones, I do have landline but AT&T pushed for "attractive" Uverse bundles (landline, wireless, Internet, TV). I settled only for Internet + landline Uverse. When the technician was here years ago, I asked him what's the catch? He said, after saying that he isn't really supposed to be telling this, but conventional landlines, that are also powered by AT&T at low voltage (so, it worked even when power went out) is a "regulated" business and AT&T wants to move people to "unregulated" Uverse. OK, so if the power goes out now, so goes down the Uverse, and the landline with it. But as I have wireless phone (T-Mobile), I am not worried about being cutoff from the world - until the cell tower goes down. And if both the power and cell towers are down, there must be some bigger problem.
Cellphone towers can get overwhelmed during disasters, whether natural or manmade. Landline service is designed to prioritize emergency calls, drop inbound calls if they can't be completed, and queue dial tone so that one can still call out. And it works.
https://www.forbes.com/sites/timbajarin/2019/10/17/1989-loma-prieta-earthquake-highlighted-critical-flaws-in-telecommunications/?sh=5d4761d1f329
Unfortunately, my local phone company (these days, that's an oxymoron) refuses to provide copper wire service.
Regarding power and other Plain Old Telephone Service (POTS) features, see BORSCHT.
Your description of VWINX sounds similar to what was originally Fidelity Utilities Income Fund (now FIUIX). A bond-ish fund, Adjustable-Rate Preferred Portfolio, was even merged into this fund in 1991.
I don’t think it takes a rocket scientist to see the advantages to a “utility” in providing tower service rather than in ground cable. Many technologies become outdated in 5-10 years. “Hard” lines (pole or buried) would be a lot more expensive, ISTM, for them to upgrade than upgrading their towers - especially if burring cable to home.
I suspect in another 10-20 years a whole lot of this stuff (maybe all) will be space based, as satellites are becoming more advanced, lighter and less expensive to launch by the day. I never thought I’d see wireless charging. But it’s here - for some devices anyways. One of the networks featured an in-production solar powered car on its Thursday newscast. Three wheeled. A slight problem is having to run a zig-zag pattern to get up any hills. And they didn’t comment on how well it works at night.
GLOFX is in our radar, but we need to sell something to make room for this fund.
At Schwab, the min is $2,500, but you don't have Fidelity's trick of paying $5 for additional shares. (OTOH, some people claim to have gotten Schwab to waive its TFs.)
At Vanguard, min is $10K (IRA or taxable), but $20 TF for both purchases and sales. (Limited number of waivers for Flagship customers.)
At Firstrade and at E*Trade, min is $10K (IRA or taxable), no TF.
Not available at Merrill.
OK - I reread @msf’s post. Looks like with over 10K at Fido you can get the reduced ER on GLFOX / GLFIX. Do you know what the initial investment in GLFIX might be? I probably could start moving a sizable chunk Monday. For GLFOX Fido’s minimum is $2500.
Nice thing to know.
Likewise, it may not count as a sale (60 day NTF restriction) since you're not selling the shares. But check with Fidelity to be sure.
And it was @WABAC who highlighted the 25 basis point savings.
I haven’t said much about this one because I was hoping it wouldn’t achieve the type of “celebratory status” everything Mr. Giroux touches enjoys. Two very different approaches for sure.
Re: (“I've done this type of transaction a couple of times at Fidelity”.)
I won’t feel badly if it doesn’t work. But with 100% now at Fidelity, they might be willing to budge a bit. My greater concern isn’t so much the 25 BP - but just getting this set up before something changes in the rules governing these funds.
Unlikely there will ever be any sabrage for GLIFX, but ya never know.
Having delved into this with some test buys at Fido, the only problem I see is that GLFOX is NTF while GLIFX carries Fido’s customary $49.99 transaction fee. Assuming an initial purchase can be done thru conversion / other no-fee process, that still leaves one a bit restricted if buying additional shares in the future. (Just trying to cover all the bases.)
IIRC, this can be setup to make a single purchase.
Automatic Investment is listed in GLFIX Transaction Fee footnotes (click Additional Important Information).
It's probably best to contact Fido directly to confirm program availability.
GLFIX Fees