Friday, April 4, 2014

Utility leadership shows more U.S. stock risk

This year’s market-leading performance of U.S. utility stocks is a sign that the risk of losses is increasing, according to Charlie Bilello, director of research at Pension Partners LLC.

The Standard & Poor’s 500 Utilities Index ended yesterday’s trading with an 8.4 percent gain for 2014. The increase was the biggest among the 10 main industry groups in the S&P 500, which rose 2.2 percent.

“The wide outperformance of the utilities sector on a year-to-date basis is certainly alarming,” Bilello wrote in a posting yesterday on his firm’s blog. Lower prices and greater volatility may be in store, the New York-based analyst wrote.

     Utilities have been the top-performing S&P 500 group in three quarters since the current bull market started in March 2009. They came out on top in the second quarter of 2010, when the index fell 12 percent, and the third quarter of 2011, when it dropped 14 percent. Last quarter, they ranked first as the S&P 500 rose 1.3 percent.

     The current strength in utility stocks makes them a better investment than the S&P 500, Bilello wrote. He recommended them as part of a strategy of switching between the industry and the index that he developed with Michael Gayed, Pension Partners’ chief investment strategist.

     This “beta rotation strategy,” as they called it, was outlined in a paper that won the Charles H. Dow Award from the Market Technicians Association this week. The award, named for a co-founder of Dow Jones & Co., is given to recognize excellence and creativity in technical analysis.

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