|By MarketMinder editorial staff, 10/17/2006|
Returns on Utilities stocks are truly electrifying this year. In fact, they're the best performing sector in the world year-to-date. The MSCI World Utilities index is up 22% versus 13% for the MSCI World.
A number of factors have come together to drive the shocking performance. Heavy consolidation in Europe has driven premiums for Utilities stocks up overseas. Long interest rates are lower globally than most forecasted, helping drive down costs for highly leveraged Utilities companies and making their dividend yields more attractive.
Lastly, surging energy demand and limited supply are pushing profits up. Most electricity grids in the developed world are aged and in dire need of upgrade. The North American Electric Reliability Council (NERC) reports demand for electricity is increasing three times as fast as resources are being added in the US. It takes a lot of time to bring new electricity supply online. Utilities are an uber-regulated industry, and the red tape involved in simply obtaining a license to build a new plant can take years. This is significant today because energy grids, particularly in the US, are beginning to approach their capacity limits.
Strong global economic growth also means growing energy needs. Therefore, in the short to medium term a lack of new supply will mean higher prices. That's bullish for Utilities stocks. Let the power flow to your portfolio and plug-in to Utilities.
*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.