Steady price declines in utility stocks over the past five months have caused small investors to pull millions of dollars out of utility mutual funds, according to data gathered for Money magazine's Small Investor Index.
Since peaking in September, the Dow Jones utility average has fallen 20 percent, mainly in response to rising interest rates. (Investors often buy utility stocks for their dividends; when interest rates on alternative investments climb, utility shares become less attractive.)Lately, investors, who started pulling out of utility funds in early November, have accelerated their selling, redeeming $614 million in February and $320 million in the first two weeks of March, according to AMG Data Services of Arcata, Calif.
For example, the Franklin Custodian Utilities Fund, with $3.1 billion in assets and a 5.3 percent yield, saw a net outflow of $267 million over the past two months. The $1.3 billion Fidelity Utilities Income fund, yielding 3.7 percent, has had $45 million in redemptions in February and another $17 million so far in March.
Many analysts, however, recommend that investors hold their remaining utility fund shares. "It is too late to sell, because most of the damage has already been done," says Geraldine Weiss, editor of the Investment Quality Trends newsletter in La Jolla, Calif.
She believes that as interest rates stabilize, utility yields, now above 6 percent in some cases, will again attract buyers.