Electric Avenue Do utility funds turn you off? This one could brighten up your portfolio.
Opinions expressed by BIZ Experiences contributors are their own.
It wasn't so long ago that investing in a utility stock wasthought to be somewhat ho-hum--reliable, but not at all sexy.Today, a lot has changed. Utility stocks--and the funds that investin them--now give off quite a spark.
Consult any broker over the age of 50, and he or she will recalla time when utility stocks were considered income-producinginvestments for ultraconservative folks, such as orphans and widowswho couldn't afford to lose any of the dividend income thesestocks provided.
But the utility stocks of the 1990s are another animal, as arethe funds that carry their name. Thanks to such factors as utilityindustry deregulation, the burgeoning of telecommunications stocksand a global market, today's utility funds are anything butstaid. Instead of the stocks of local power companies, the stocksnow found in a utility fund's portfolio may include everythingfrom national to foreign interests.
One of the top-performing utility funds around is the MFSUtilities Fund, A Shares. In fact, for the past three years, it wasranked in the top three. In both 1995 and 1996, it was number one;in 1997, it was number three, with a total return of 31.89 percent,according to Lipper Analytical Services Inc.
Maura Shaughnessy has been the fund's portfolio managersince its inception in February 1992. Ask her how she's been sosuccessful at managing the fund, and she'll tell you one reasonis that she isn't wed to any particular sector of themarket.
"I buy stocks and [convertible securities]. And I keepabout 80 percent of the portfolio in stocks and 20 percent in bondsfor income reasons," says Shaughnessy.
The MFS Utilities Fund typically has about 80 securities in itsportfolio. At press time, 82.4 percent of the fund's assets wasinvested in utility and communications stocks. Of that percentage,15.5 percent was in electric utilities, 13.4 percent in gas, 7.9percent in telephone and 5.5 percent in telecommunicationscompanies.
The second-largest industry weighting in the fund is infinancial services. At press time, it made up 10.8 percent of theportfolio, with the lion's share of those assets (9 percent)invested in real estate investment trusts. The remaining 7 percentof the portfolio was invested in a variety of industries, includingtechnology and energy.
While you'll find plenty of big-name U.S. companies likeMCI, WorldCom, Columbia Gas Systems and Bell Atlantic in thefund's portfolio, Shaughnessy also invests in some foreignutilities. One of her favorite selections is the Chilean electriccompany Chilectra. She likes the company's growth, cost-cuttingmeasures and pricing strategy. Plus, Chilectra's managementteam has proved itself to be turnaround specialists. "TheChilean electric model has spread to other countries in LatinAmerica," says Shaughnessy.
If the thought of investing in utility companies doesn'texactly turn you on, you might want to think again. While there isno doubt this is a stock-pickers portfolio, the MFS Utilities Fundis not for the ultraconservative.
"It's not a widow and orphan group," saysShaughnessy, "because if you're wrong [about the stocksyou've selected], you're really wrong."
Dian Vujovich is a nationally syndicated mutual fundcolumnist and author of Straight Talk About Mutual Funds(McGraw-Hill); Straight Talk About Investing for YourRetirement (McGraw-Hill); and 10-minute Guide to Stocks(Macmillan).
At A Glance
Fund name: MFS Utilities Fund, A Shares
Managed by: MFS Family of Funds
Total assets: $223 million
Annual return since inception on February 14, 1992:18.1%
One-year return: 31.89%
Load: Maximum load is 4.75% on investments of less than$50,000
Management fee: Approximately 0.5%
Minimum initial investment: $1,000
Phone: (800) 637-2929
Web site:http://www.mfs.com
