Formally, Maura Shaughnessy has close to US$1 billion, or 35 percent of her fund's portfolio, invested in foreign utilities. But these days, with a power crisis in parts of the US, she figures that there is much less reason to look overseas. So Shaughnessy, who runs the US$2.66 billion MFS Utilities fund, has trimmed her international holdings to just 15 percent of the fund's assets, the lowest level since December 1996.
"Nowhere is quite as bad as California, but over all the electricity infrastructure in the US hasn't been built to the levels that it should have been," Shaughnessy, 39, said from her Boston office, which overlooks the Charles River. "The shortage of generation has allowed the price of electricity to rise because of strong demand, and companies with power to sell have been able to take advantage of it."
The electricity shortage has helped the fund's returns. The portfolio gained 14.3 percent a year, on average, for the three years through Thursday, versus 10 percent for its peers in the utility group and 6.5 percent for the Standard & Poor's 500, according to Morningstar Inc.
Utilities have traditionally paid substantial dividends, but those payouts have shrunk in recent years. To beef up yields, Shaughnessy buys a mix of utility bonds, convertible securities and Treasury issues equal to about 20 percent of the fund's assets. That helps to generate the fund's relatively high yield, which was 3.81 percent for the 12 months through April. The utility group tracked by Morningstar yields an average of 2.02 percent.
The stock portion of the portfolio is divided among natural gas, electric utility and telecommunications stocks. Shaughnessy tries to reduce risk by diversifying among companies of different sizes and among countries.
She describes her investment style as growth at a reasonable price, with a focus on relative value. "We buy stocks whose prices look reasonable compared to their peers, earnings and history," she said. She uses the same approach with a more diversified group of stocks in the US$6.19 billion MFS Capital Opportunities fund.
Eight MFS industry analysts work with her to pick the 150 or so stocks in the funds. She also relies on her more than 13 years of utilities investing at MFS and the Harvard Management Co.
Most important, she said, is understanding the various regulatory environments in which the companies operate, because most are regulated at the state level. She looks for companies that have strong management with proven records -- and, preferably, with significant stock ownership. "There's been deregulation going on for several years now," she said. "In a deregulating environment, it's important to find management that can run utilities like real businesses."
Energy companies typically are mature businesses, with steady earnings and a relatively long track record, Shaughnessy said.
"So I'm looking at whether the growth rates are accelerating," she said, "and how the stock trades relative to its expected growth.''
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