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Follow on Google News | PowerShares Momentum Tracker sees utilities gain momentumFidelity Independent Adviser's PowerShares Momentum Tracker sees PUI jump in its Sector Momentum Table
The utilities index, which includes many key holdings of PowerShares Dynamic Utilities (PUI), fell just 5.8% from its 52-week high, besting 10 others, except for NYSE Energy (up 7.6% in the first half, down 4.0% from last fall’s high). Fidelity Independent Adviser’s PowerShares Momentum Tracker has noted PUI’s increasing relative momentum on their Sector Momentum Table. PUI has jumped from the no. 20 spot in their ranking on June 4th, to the no. 15 spot, which it has held the last three weeks. http://store.fidelityindependentadviser.com/ Compared to key industry, style and broad-market indices—such as the NASDAQ Composite, the Russell 2,000, the S&P 500, the S&P SmallCap 600 and the Dow Jones Industrial Average—Don Dion, publisher of PowerShares Momentum Tracker, notes that “the utilities sector stood out not just for its 2008 return, but for its limited retreat in the face of a tough market threatening to reach full-out bear status.” http://store.fidelityindependentadviser.com/ PUI ended the first half of the year down just 1.6%, nearly 11 points better than the S&P 500. The fund also fared better than 99% of specialty utilities ETFs tracked by Morningstar. “Historically, of course, utilities are the ultimate defensive stocks, a safe haven in troubled economic times,” Dion says. Why? “They tend to pay strong dividends and benefit from the usually recession-proof need for electricity” Then, over the last five-plus years, utilities took off, turning the stocks of generators and distributors from the favorite of slow-and-steady investors into growth stocks that strongly outshone the broader market. PUI debuted in the middle of that run-up and has compiled a 25.1% NAV return since its November 2005 inception—nearly four-and-a-half times better than the S&P 500 over that period. With those stellar returns comes more volatility, and utilities stocks took a hit when the mortgage crisis and credit crunch sent investors fleeing, dropping the fund’s NAV by nearly 15% between Dec. 10 and March 28. “Investors have come to question the sector’s ability to outperform in down markets,” Dion said, also reminding investors of the struggle endured by utilities in the downturn of 2001-2002—though, “to be fair,” Dion adds, “some utilities spread their wings into telecom energy trading, infrastructure and even media during that time.” Industry bulls say that practice has died down, replaced by efforts to produce alternative power. “PUI represents a nearly pure play on utilities,” said Dion. Of the top 15 holdings, which account for more than 55% of assets, 10 are primarily electric utilities (including all of the top eight) and five are natural gas utilities. Those five, grouped from No. 9 to No. 14 on the PUI holdings list, have an average return of 3.1% in the last month (through June 30). Four of them—Nicor, Northwest Natural Gas, Laclede Group and WGL Holdings—are “pure” gas utilities, meaning they make most or all of their money delivering natural gas. The S&P Natural Gas Utility Index is up 11.03% year to date, compared to a loss of 5.93% for the corresponding electric utilities index. Gas distributors are outperforming, a boost that Dion credits to “rising gas prices and the attractiveness of their dividends.” That’s not to say that electric and diversified utilities are hurting PUI’s returns. Top holding FirstEnergy has seen shares rise 4.6% in a month and 13.8% year to date (through June 30), thanks to rate increases expected in 2008 and the firm’s moves toward wind power. In fact, the fund’s top four holdings—including PSEG, Dominion Resources and PPL—have an average one-month return of 3.53%. Over the longer haul, those four stocks mark the utilities run-up with five-year returns that average 109.6%, compared to 30.8% for the S&P 500. “If—and this is a big if—electric utilities can continue to pass on the surging costs of fuel, the stocks and the fund could continue to post outsize gains,” Dion predicts, while acknowledging slowdowns in the sector late last year – “Last winter’s beating showed.” Some analysts remained concerned about overvalued stocks in the sector. S&P analyst Justin McCann said recently that utilities stocks typically carry a price-to-earnings ratio that’s about 70% of the S&P 500’s. According to S&P, PUI’s price-to-prospective earnings ratio is 14.44, giving the fund a 1.08 ratio in comparison to the large-cap index. That said, Dion remains optimistic, noting that “PUI has held up well in tough times. As a niche holding, it may provide some defense if the ups and downs of the second quarter.” http://store.fidelityindependentadviser.com/ Performance* Period 1 week 1 month 3 months Year to date -1.26% One year *Through June 30, 2008 **S&P 500 Source: Morningstar Top 10 Holdings* FirstEnergy Public Service Enterprise Group Dominion Resources (Virginia) PPL Entergy Edison International American Electric Power Duke Energy Vectren Nicor *As of 6/30/08 Source: PowerShares.com PowerShares Momentum Tracker is a member of Fidelity Independent Adviser’s family of financial publications. With more than 70,000 subscribers in the United States and 29 other countries, Fidelity Independent Adviser publishes four monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers. http://store.fidelityindependentadviser.com/ Publisher Don Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Massachusetts, Dion Money Management manages more than $720 million in assets for clients in 49 states and 11 countries. A licensed attorney in Massachusetts and Maine, Mr. Dion has more than 25 years’ experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management. http://www.dionmm.com/ # # # Fidelity Independent Adviser is a family of newsletters, that provides to a broad range of investors Don Dion’s commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 70,000 subscribers in the United States and 29 other countries, Fidelity Independent Adviser publishes four monthly newsletters and three weekly newsletters. http://www.fidelityadviser.com/ End
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