Jeff Tjornehoj on "Business for Breakfast" 1060 KRCN Tuesday, August 29, 2006 - Sector Fund Performance
Q: Hi, Jeff. We understand you're looking at sector funds this week. What's the report? A: I wish I could say that all sector fund categories have had a great year so far, but when is that ever the case? Instead, we've seen a few surprises--both good and bad.
Q: We like the good news first around here.
A: Okay, then I'll select utilities funds as this year's comeback kid. The funds in the group are up over 10% so far, and there seems to be some legs left in this rally. As a group these funds were knocked down for a few years, whether it was their telecom ventures in the '90s or their trying to copy Enron before that company imploded. Since 2003 they've done well, and one figure still intriguing me is that utilities funds--because of their previous problems--are paying about 60% of earnings as dividends. Before deregulation the dividend payout rate was closer to 90%, and as they get better control of their balance sheet I can see the industry approaching the high-water mark again. And people love their dividends these days.
Q: But will higher interest rates hurt them?
A: I don't think that'll hurt them too much. Not that they've sworn off debt, but cash flows are getter stronger, in general. Add in a better merger environment and this sector still looks attractive to me.
Q: What about gold and real estate?
A: Year to date they've done better than utilities, but I guess I'm not surprised by that. Anyone who jumped into gold from mid-April to mid-May is still smarting, though--gold really took a hit after that, but since June it's come back. Real estate funds are up about 9.6% in the past three months, and whatever funk they were in this spring they seem to have shrugged off.
Q: How do natural resources funds fit into this?
A: Disappointingly. Who'd have believed that eight months into the year those wonderful energy stocks would have done about the same as telecom and financial services funds? Of course, the other two have a minuscule chance of roaring back to the front of the pack.
Q: And tech?
A: Techs did okay until May, then the wheels fell off their wagon. First and second quarter earnings were sometimes pretty good, but forward-looking statements tended to guide analysts lower and people just hate that. And healthcare/biotech funds are only slightly better off. They're off their lows for the year, but progress has come slowly.
Q: Great, thanks again, Jeff.
A: My pleasure.
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