MFS’s Shaughnessy Tops Utility Funds With NiSource (Update1)
By Charles Stein
July 2 (Bloomberg) — Maura Shaughnessy, manager of the top-ranked utility mutual fund over the past five years, is beating rivals in 2009 because of bets on companies including NiSource Inc. and El Paso Corp. before markets rebounded.
“Back in February and March, the prices didn’t make sense,” Shaughnessy, who runs the $2.1 billion MFS Utilities Fund, said in a telephone interview. “It was a freak show.”
Shaughnessy, 47, acquired shares of NiSource and Windstream Corp., which lost half their value until they began climbing in early March. Yields on junk bonds exceeding 15 percent led her to debt issued by pipeline company El Paso.
MFS Utilities returned 11 percent annually in five years through June 30, compared with the average of 6.3 percent for funds that invest mainly in the stocks of regulated utilities, according to research firm Morningstar Inc. The fund rose 11 percent this year, including reinvested dividends, better than 97 percent of comparable funds.
David Kathman, an analyst for Chicago-based Morningstar, said Shaughnessy benefited this year because she designs her fund to be riskier than those of rivals.
“Her foreign stocks and, to a greater extent, her stocks that are sensitive to energy prices helped her this year,” Kathman said in a telephone interview.
The fund had 33 percent of its assets in foreign stocks and 17 percent in energy-company shares at the end of April, Morningstar data show.
MFS Utilities fell 38 percent last year, 6 percentage points more than the Standard & Poor’s 500 Utilities Index, as oil prices dropped 54 percent and the U.S. dollar strengthened, Shaughnessy said. Oil prices rose 57 percent in the first six months of this year.
“My performance sucked wind last year,” said Shaughnessy, who manages $4.5 billion for Boston-based MFS Investment Management. She earned a bachelor’s degree in economics from Colby College in Waterville, Maine, and a master’s degree in business administration from Dartmouth College in Hanover, New Hampshire. Shaughnessy has managed the fund since 1992.
MFS Utilities recovered in 2009, in part by buying shares of NiSource, the owner of Indiana’s largest utility, in the first quarter. The Merrillville, Indiana-based company gained 48 percent from March 5 through June 30. It tumbled 58 percent in the prior 14 months.
Windstream, a provider of telephone and Internet service to 16 states, gained 26 percent after March 5. The Little Rock, Arkansas-based company shed 49 percent of its value from the end of 2007.
The NiSource and Windstream investments were like “clipping a great coupon,” Shaughnessy said. NiSource’s dividend yield peaked at 12 percent in the first quarter and is now 7.9 percent, according to Bloomberg data. Windstream’s dividend yield is 12 percent.
Shaughnessy bought bonds issued in December by El Paso, a Houston-based owner of the largest U.S. network of natural-gas pipeline. The five-year, 12 percent senior notes were made available in the first junk-bond offering in two months.
The bond returned 14 percent from its issue date through March 11, the date of the last available price in the first quarter, Bloomberg data show. Shaughnessy no longer held the debt on March 31, according to MFS.
AES Corp., an Arlington, Virginia-based power company, was the fund’s third-largest holding at the end of May, according to the MFS Web site. The stock, which climbed 41 percent this year, benefited from operations in more than two dozen countries.
The fund also holds shares of two Brazilian subsidiaries of AES, Eletropaulo Metropolitana SA and AES Tiete SA, Bloomberg data show. Eletropaulo Metropolitana gained 37 percent this year and AES Tiete rose 38 percent.
‘Into the Ocean’
Shaughnessy’s fund owned 2.5 percent of Jackson, Michigan- based CMS Energy Corp. as of April 30, according to Bloomberg data. MFS held 6.8 percent of shares a month earlier, making it the utility’s largest shareholder, the data show.
“Everyone thought, ‘Oh, my God, the company is in Michigan. It is going into the ocean,’ ” Shaughnessy said. The state’s unemployment rate, 14 percent in May, is the highest in the U.S., according to the Bureau of Labor Statistics.
Instead, CMS rebounded by 19 percent this year after plunging 42 percent in 2008. The stock bounced back because it was cheap and priced as if “it were on a death watch,” Shaughnessy said.
Exelon Raises Offer
Her biggest holding at the end of May was NRG Energy Inc., the subject of a hostile takeover bid by Exelon Corp., the largest U.S. utility owner by market value. Exelon raised its offer today for NRG, a Princeton, New Jersey-based power producer, by 12 percent to $7.45 billion.
NRG twice rejected Chicago-based Exelon’s original bid of $6.2 billion, saying it was too low.
“Exelon will have to pay much more or the deal won’t go through,” Shaughnessy said in an interview last week. She couldn’t immediately be reached for comment today.
Exelon, in a statement today, called the latest proposal “its best and final offer.”
Shaughnessy said last week that NRG’s prospects as an independent company would improve in the next few years with an economic revival and increasing demand for power.
She described NRG, the owner of utility plants in Texas, California and the northeastern U.S., as the nation’s best power producer “by a zillion percent” because it makes good use of its cash flow by buying back stock and paying down debt.
NRG shares gained 12 percent this year through July 1. Exelon shares declined 7.3 percent.
To contact the reporter on this story: Charles Stein in Boston at firstname.lastname@example.org.
Last Updated: July 2, 2009 08:58 EDT