Sectors go in and out of favor and I think it is fair to say that at the moment utility stocks – and their accompanying funds – are most definitively out of favor. They are perceived as the classic “no- growth”, defensive, boring sector with lousy balance sheet fundamentals. Some stocks certainly do fit this description but I think good, active fund managers should still be able to find some value in this sector.
Which brings me to my favourite utility and infrastructure fund, Ecofin Global Utility and Infrastructure, ticker EGL. I tend to keep a watchful eye on this income-focused fund which currently has a running yield of 5% per annum and have mentioned it in the past in my MoneyWeek articles.
Its managers have a good long term track record and in recent years they’ve gone out of their way to smarten up their act. They’ve got rid of the old complicated split cap structure, offloaded some idiosyncratic special situations holdings and relaunched the main fund to include infrastructure businesses. Crucially performance of late seems to be more than decent. According to the latest fact sheet issued at the end of last month the 1 month return for the fund was +4.9% versus +3.5% for the MSCI World Utilities Index – for the last 3 months that gain increases to 10.9% versus 10.5% for the index.
So, I think we can reasonably observe a decent absolute return and evidence of outperformance versus the index.
And how have the shares performed ?
According to numbers from Numis, over the last 1 month the equity is up just 1.2% – over 3 months the gain is +3.9%. The fund currently trades on a discount of 14.8% which is not far off its recent highest discount level of 16.9% and well over the near term average discount of 12.1%.
So, let’s sum up.
Good absolute and relative recent performance with evidence of alpha, a cleaned up share structure with refocused managers and a decent yield.
But the discount has INCREASED and the shares have singularly failed to keep up with NAV returns.
As Private Eye used to say “shurely shome mistake?”