Fisher Investments on Utilities E-Book

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Fisher Investments Press
• Sprache: Englisch

Seitenzahl: 274

Veröffentlichungsjahr: 2011

Beschreibung

The Fisher Investments On series is designed to provide individual investors, students, and aspiring investment professionals the tools necessary to understand and analyze investment opportunities--primarily for investing in global stocks. Each guide is an easily accessible primer to economic sectors, regions, or other components of the global stock market. While this guide is specifically on Utilities, the basic investment methodology is applicable for analyzing any global sector, regardless of the current macroeconomic environment. Following a top-down approach to investing, Fisher Investments on Utilities can help you make more informed decisions within the Utilities sector. It skillfully addresses how to determine optimal times to invest in Utilities stocks and which Utilities industries have the potential to perform well in various environments. Divided into three comprehensive parts--Getting Started, Utilities Details, and Thinking Like a Portfolio Manager--Fisher Investments on Utilities: * Explains some of the sector's key macro drivers--like regulation, economic cycles, and investor sentiment * Shows how to capitalize on a wide array of macro conditions and industry-specific features to help you form an opinion on each of the industries within the sector * Takes you through the major components of the industries within the global Utilities sector and reveals how they operate * Offers investment strategies to help you determine when and how to overweight specific industries within the sector * Outlines a five-step process to help differentiate firms in this field--designed to help you identify ones with the greatest probability of outperforming Filled with in-depth insights, Fisher Investments on Utilities provides a framework for understanding this sector and its industries to help you make better investment decisions--now and in the future. With this book as your guide, you can gain a global perspective of the Utilities sector and discover strategies to help achieve your investing goals.

Leseprobe

Contents

Foreword

Preface

Acknowledgments

Part I: Getting Started in Utilities

Chapter 1: Utilities Basics

Utilities 101

A Defensive Sector

What Makes Utilities Defensive?

Chapter 2: A Brief History of the Electric Utilities Industry

Early Development in the US (1882–1935)

A Maturing Industry (1935–1978)

Market Liberalization and a New Set of Rules (1978–2009)

An Auspicious Start to the Twenty-First Century

Part II: Next Steps: Utilities Details

Chapter 3: Utilities Sector Composition

Global Industry Classification Standards (GICS)

Global Utilities Benchmarks

Why Don’t Utilities Have More Weight?

Benchmark Differences

Benchmark Changes

Sector Benchmarks

Industry Breakdown

Chapter 4: The Electricity Business in Depth

The Consumer: Who Uses Electricity?

The Vertically Integrated Electric Utility

Power Generation

Transmission

Distribution

Chapter 5: Utilities Sector Drivers

Economic Drivers

Political Drivers

Sentiment Drivers

Chapter 6: Utilities Investing in a Resource-Conscious World

Energy Challenges

Policy Solutions

Technological Solutions

Part III: Thinking Like a Portfolio Manager

Chapter 7: The Top-Down Method

Investing Is a Science

The Top-Down Method

Top-Down Deconstructed

Managing Against a Utilities Benchmark

Chapter 8: Security Analysis

Make Your Selection

A Five-Step Process

Utilities Analysis

Chapter 9: Utilities Investing Strategies

Adding Value at the Sector Level

Adding Value at the Country or Industry Level

Adding Value at the Security Level

Notes

About the Authors

Index

Copyright © 2011 by Fisher Investments Press. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Gilliland, Theodore.

Fisher investments on utilities / with Theodore Gilliland and Andrew S. Teufel.

p. cm. — (Fisher investments press; 28)

Includes index.

ISBN 978-0-470-64212-2; ISBN 978-1-118-00984-0 (ebk); ISBN 978-1-118-00985-7 (ebk); ISBN 978-1-118-00986-4 (ebk)

1. Public utilities—United States—Finance. 2. Stocks—United States.

I. Gilliland, Theodore. II. Teufel, Andrew S. III. Title.

HD2766.G47 2011

333.793’20973—dc22

2010042176

FISHER INVESTMENTS PRESS

Fisher Investments Press brings the research, analysis, and market intelligence of Fisher Investments’ research team, headed by CEO and New York Times best-selling author Ken Fisher, to all investors. The Press covers a range of investing and market-related topics for a wide audience—from novices to enthusiasts to professionals.

Books by Ken Fisher

Debunkery

How to Smell a Rat

The Ten Roads to Riches

The Only Three Questions That Count

100 Minds That Made the Market

The Wall Street Waltz

Super Stocks

Fisher Investments Series

Own the World by Aaron Anderson

20/20 Money by Michael Hanson

Fisher Investments On Series

Fisher Investments on Energy

Fisher Investments on Materials

Fisher Investments on Consumer Staples

Fisher Investments on Industrials

Fisher Investments on Emerging Markets

Fisher Investments on Technology

Fisher Investments on Consumer Discretionary

Fisher Investments on Utilities

Fisher Investments on Health Care

Foreword

I’m pleased to introduce the ninth in a series of investing guides from Fisher Investments Press. This imprint—the first ever from a money manager—aims to bring the accumulated investing wisdom of my firm to you in category, bite-sized formats, whether you’re an investing enthusiast, student, or aspiring professional.

This particular series, the Fisher Investments On series, presents a usable, top-down strategy for analyzing standard investing sectors (Energy, Materials, Consumer Staples, Health Care, Utilities, etc.) as well as other investing regions and categories. Each book is meant to stand alone—choose a topic that particularly interests you. But together, they can be a rigorous, do-it-yourself training program for the full breadth of capital markets analysis.

The book in your hands is on Utilities—currently about 4 percent of total world stocks (as measured by the MSCI All Country index). Unless you work for a utility, you probably never think about what powers your lamps, TV, or stove. Or at least you don’t think about it until the power goes out—then this sector’s importance is suddenly clear. It’s a smallish sector, but vital to how we live, work, and play. And that vitality explains a key defining characteristic of Utilities.

We take utilities for granted today, but in the nineteenth century, they were growth categories in America—as they are now in emerging markets. In late nineteenth-century America, electricity was very much like semiconductors were in the 1960s through 1990s—fast-growing, ever-decreasing costs per unit on an exponential basis, and about as gee-whiz as it gets. Now we see utilities largely as boring and take them for granted. But they’re also basic, everywhere, and though not huge as a percentage of our market cap, a very real and unshakable part of our reality.

Utilities firms are responsible for providing electricity, heat, and clean water—three commodities critical to modern living—and very difficult to give up. Because they’re difficult to go without, demand tends to be highly inelastic—it doesn’t stretch much in either direction no matter the economic climate. And because utilities are so vital, governments globally usually keep utilities tightly regulated.

Inelastic demand and tight regulation make Utilities a classically defensive sector—meaning it tends to underperform the broad market in a bull market, but outperform in a bear. And no matter the market conditions, it provides key diversification benefits since it’s relatively low volatility compared to most other sectors.

This doesn’t mean that when the market drops big, Utilities stocks always are positive. No—just that on a relative basis, Utilities are typically a good bet to dampen the impact of a prolonged market downturn. But it’s never as easy as just timing market cycles—though that itself isn’t easy. Sometimes, Utilities can surprise by outperforming in an upturn. And the sector gets further complicated by being heavily regulated—and politicians can be very fickle. To invest successfully here, you must know what distinct drivers impact Utilities industries and how they differ globally. And you must remember that stocks look forward, not back, so it’s perfectly normal for Utilities stocks to start outperforming just when sentiment seems particularly rosy on stocks and no one is looking for a bear market. And, again, emerging markets Utilities can act very differently than developed markets Utilities—which isn’t terribly surprising.

What the book won’t do is give you hot stock tips for this or any other year. Such a thing doesn’t exist—someone telling you otherwise is deluding himself or trying to fool you. Rather, this book provides a workable, repeatable framework for increasing the likelihood of finding profitable opportunities in the Utilities sector. And the good news is the investing methodology presented here works for all investing sectors and the broader market. This methodology should serve you not only this year or next, but the whole of your investing career. So good luck and enjoy the journey.

Ken Fisher

CEO of Fisher Investments

Forbes Portfolio Strategy Columnist

Author of the New York Times Best Sellers, The Only Three Questions That Count, The Ten Roads to Riches, and How to Smell a Rat

Preface

The Fisher Investments On series is designed to provide individual investors, students, and aspiring investment professionals the tools necessary to understand and analyze investment opportunities, primarily for investing in global stocks.

Within the framework of a “top-down” investment method (more on that in Chapter 7), each guide is an easily accessible primer to economic sectors, regions, or other components of the global stock market. While this guide is specifically on Utilities, the basic investment methodology is applicable for analyzing any global sector, regardless of the current macroeconomic environment.

Why a top-down method? Vast evidence shows high-level, or “macro,” investment decisions are ultimately more important portfolio performance drivers than individual stocks. In other words, before picking stocks, investors can benefit greatly by first deciding whether stocks are the best investment relative to other assets (like bonds or cash), and then choosing categories of stocks most likely to perform best on a forward-looking basis.

For example, a Utilities sector stock picker in the 1990s probably saw his picks lag as regulated utilities were left out of the decade’s tremendous technological innovation. However, in the next decade he probably saw his picks soar as electricity markets were deregulated around the world. Was he just smarter in the 2000s than he was in the 1990s? Unlikely. What mattered most was that Utilities did poorly in the 1990s, but was the world’s best-performing sector in the 2000s. In other words, a top-down perspective on the broader economy was key to navigating markets—stock picking just wasn’t as important.

Fisher Investments on Utilities will guide you in making top-down investment decisions specifically for the Utilities sector. It shows how to determine better times to invest in Utilities, what Utilities industries are likelier to do best, and how individual stocks can benefit in various environments. The global Utilities sector is complex, covering different industries and countries with unique characteristics. Using our framework, you will be better equipped to identify their differences, spot opportunities, and avoid major pitfalls.

This book takes a global approach to Utilities investing. Most US investors typically invest the majority of their assets in domestic securities; they forget that America is less than half of the world stock market by weight—over 50 percent of investment opportunities are outside our borders. While a relatively large proportion of the world’s Utilities weight is based in the US, there remain many investment opportunities overseas. Given the vast market landscape and diverse geographic operations, it’s vital to have a global perspective when investing in Utilities today.

USING YOUR UTILITIES GUIDE

This guide is designed in three parts. Part I, “Getting Started in Utilities,” discusses vital sector characteristics, the history of the sector since Thomas Edison invented the incandescent light bulb, and an overview of the sector’s five industries.

Part II, “Next Steps: Utilities Details,” walks through the next step of sector analysis. We’ll discuss Electric Utilities—the sector’s most important industry—in depth, analyzing electricity demand drivers, utilities regulation, power generation economics, and electricity transmission and distribution.

We’ll then take a look at the most important economic, political, and sentiment factors that drive Utilities’ relative performance, and how investors can use factors to determine how to generate a forecast for the Utilities sector.

Part II also explores some of the most pressing challenges facing the sector today, including resource scarcity, energy security, and climate change, and discusses some of the potential solutions, including renewable energy.

Part III, “Thinking Like a Portfolio Manager,” delves into a top-down investment methodology and individual security analysis. You’ll learn to ask important questions like: What are the most important elements to consider when analyzing Electric Utilities and Independent Power Producers? What are the greatest risks and red flags? This book gives you a five-step process to help differentiate firms so you can identify ones with a greater probability of outperforming. We’ll also discuss a few investment strategies to help determine when and how to overweight specific industries within the sector.

Fisher Investments on Utilities won’t give you a “silver bullet” for picking the right Utilities stocks. The fact is the “right” Utilities stocks will be different in different times and situations. Instead, this guide provides a framework for understanding the sector and its industries so that you can be dynamic and find information the market hasn’t yet priced in. There won’t be any stock recommendations, target prices, or even a suggestion whether now is a good time to be invested in the Utilities sector. The goal is to provide you with tools to make these decisions for yourself, now and in the future. Ultimately, our aim is to give you the framework for repeated, successful investing. Enjoy.

Acknowledgments

A number of colleagues and friends deserve tremendous praise and thanks for helping make this book a reality. We would like to extend our tremendous thanks to Ken Fisher for providing the opportunity to write this book. Jeff Silk deserves our thanks for constantly challenging us to improve and presenting new and insightful questions as fast as we can answer them. Our colleagues at Fisher Investments also deserve tremendous thanks for continually sharing their wealth of knowledge, insights, and analysis. Without these people the very concept of this book would never have been possible.

We owe enormous thanks to Lara Hoffmans for her guidance and significant editing contributions—she was instrumental in completing this book. We’d also like to thank Evelyn Chea for her editing work and assistance with citations and sources. Thanks also to Leila Amiri for her attractive graphics and images, and to Fred Harring, Tom Fishel, and Nicole Gerrard for kindly giving their valuable time to do a thoughtful review of the book.

Marc Haberman, Molly Lienesch, and Fabrizio Ornani were also instrumental in the creation of Fisher Investments Press, which created the infrastructure behind this book. Of course, this book would also not be possible without our data vendors, so we owe a big thank-you to Thomson Reuters, Global Financial Data, and Standard & Poor’s. We’d also like to thank our team at Wiley, for their support and guidance throughout this project, especially Laura Walsh and Kelly O’Connor.

Theodore Gilliland would also like to specifically thank his father Frank, mother Judy, and brother Donny for their ongoing support, as well as his manager, Bill Glaser, for his understanding, patience, and encouragement through the book-writing process.

Part I

GETTING STARTED IN UTILITIES

Chapter 1

UTILITIES BASICS

It’s 7:30 a.m., and if your alarm clock was working, it would have woken you for work an hour ago. The cold wakes you instead—it’s only 40 degrees in your bedroom. Near hypothermic, you flip the light switch—nothing. Grumbling and very late, you blindly stumble out of bed, stubbing your toe. You painfully hobble toward the kitchen for a redeeming hot cup of coffee. Sadly, there’s no water coming out of your faucet. Cold, caffeine-less, and cantankerous, you leave for work hoping your job is still waiting for you.

Utilities may not have sexy brand names or occupy skyscrapers on Wall Street, but the sector will get your attention if your electricity, gas, and water are turned off at six in the morning. The Utilities sector plays a critical role in both our personal lives and the global economy, and can serve an equally important purpose in an investor’s portfolio.