It wasn't so long ago that investing in a utility stock was thought to be somewhat ho-hum--reliable, but not at all sexy. Today, a lot has changed. Utility stocks--and the funds that invest in them--now give off quite a spark.
Consult any broker over the age of 50, and he or she will recall a time when utility stocks were considered income-producing investments for ultraconservative folks, such as orphans and widows who couldn't afford to lose any of the dividend income these stocks provided.
But the utility stocks of the 1990s are another animal, as are the funds that carry their name. Thanks to such factors as utility industry deregulation, the burgeoning of telecommunications stocks and a global market, today's utility funds are anything but staid. Instead of the stocks of local power companies, the stocks now found in a utility fund's portfolio may include everything from national to foreign interests.
One of the top-performing utility funds around is the MFS Utilities Fund, A Shares. In fact, for the past three years, it was ranked 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 manager since its inception in February 1992. Ask her how she's been so successful at managing the fund, and she'll tell you one reason is that she isn't wed to any particular sector of the market.
"I buy stocks and [convertible securities]. And I keep about 80 percent of the portfolio in stocks and 20 percent in bonds for income reasons," says Shaughnessy.
The MFS Utilities Fund typically has about 80 securities in its portfolio. At press time, 82.4 percent of the fund's assets was invested in utility and communications stocks. Of that percentage, 15.5 percent was in electric utilities, 13.4 percent in gas, 7.9 percent in telephone and 5.5 percent in telecommunications companies.
The second-largest industry weighting in the fund is in financial services. At press time, it made up 10.8 percent of the portfolio, with the lion's share of those assets (9 percent) invested in real estate investment trusts. The remaining 7 percent of the portfolio was invested in a variety of industries, including technology and energy.
While you'll find plenty of big-name U.S. companies like MCI, WorldCom, Columbia Gas Systems and Bell Atlantic in the fund's portfolio, Shaughnessy also invests in some foreign utilities. One of her favorite selections is the Chilean electric company Chilectra. She likes the company's growth, cost-cutting measures and pricing strategy. Plus, Chilectra's management team has proved itself to be turnaround specialists. "The Chilean electric model has spread to other countries in Latin America," says Shaughnessy.
If the thought of investing in utility companies doesn't exactly turn you on, you might want to think again. While there is no doubt this is a stock-pickers portfolio, the MFS Utilities Fund is not for the ultraconservative.
"It's not a widow and orphan group," says Shaughnessy, "because if you're wrong [about the stocks you've selected], you're really wrong."
Dian Vujovich is a nationally syndicated mutual fund columnist and author of Straight Talk About Mutual Funds (McGraw-Hill); Straight Talk About Investing for Your Retirement (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