Competition from private-equity groups is cramping the style of the few investment trusts that specialise in the utilities sector, says Bernard Lambilliotte, chief executive of fund management group Ecofin, quoted in the FT. "Their presence is altering valuations."
But despite that hindrance, the performance of his utilities fund has been extremely strong. The Ecofin Water & Power Opportunities (EW&PO) closed-end investment trust, which invests in water, electric power and gas-distribution companies across Europe and the Americas, managed a 66.5% return in the past year, according to Standard & Poor's. This compares to a 36.55% return over the same period by the utilities sector benchmark. At present, Lambilliotte thinks that Germany and Spain are the best-value markets in Europe, but the fund is also eyeing up Russia and Latin America. The types of firms targeted vary by region; electricity investments account for around 51% of the portfolio, but in the UK, water is seen as the most attractive.
The fund's strategy is "simple but effective", says Ellen Kelleher in the FT.
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It takes stakes in companies that are undervalued or poorly managed, building them up to a size where they have influence over the management. "The key is that you have to become an active investor," says Lambilliotte. He cites their success in forcing changes at French electricity firm Schilienne-Sidec as an example; revenues increased and the company upped the dividend, doubling the value of EW&PO's stake.
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EW&PO top ten holdings
Name of holding % of assets
Schilienne-Sidec 16.74%
Pennon Group 6.57%
Severn Trent 4.42%
International Power 3.97%
Gaz de France 3.55%
William Companies 3.38%
EDF 3.04%
Terna 2.74%
Eon 2.63%
TXU 2.58%
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