Williamstown, MA, July 10, 2008 --(PR.com
)-- In a helter-skelter second quarter, the Dow Jones Utilities Average was one of the top-performing major indices, with an 8.7% return that trailed only the NYSE Energy Index, according to a July 1 report from Bloomberg.
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.
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.”
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.”
“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).
“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.”
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.”