Utilities stocks best performing sector of the year
Largely ignored during much of last year's 30pc rally in the Standard & Poor's 500 Index, the stocks leading the US market this year rank among its usually sleepiest components.
The best sector in 2014 is utilities, including Consolidated Edison, about as staid a group as one can get. They're up 14.5pc on a total return basis this year, compared with 6.4pc for the S&P 500 as a whole.
What's happening is the opposite of what ordinarily happens in a moving market. It relates to an investing concept known as "beta," which refers to the amount of risk a particular stock adds to a portfolio. Stocks that tend to rise or fall with the market – but in a more pronounced way – are called "high beta." They generally outperform in up markets and fall the most in down markets.
Best Buy and Priceline, two discretionary stocks that were among the S&P's strongest in 2013, are good examples because their sales and profits rise along with the economy.
This year, those stocks are lagging. It's a signal that investors are worried about earnings growth and US economic demand, and don't want to bet as heavily on the types of stocks that generally qualify as high beta – often cyclical names in the technology, discretionary and energy sectors.
This may change if growth picks up, but after US gross domestic product contracted in the first quarter for the first time in three years, investors are cautious.
So far this year, the 50 stocks in the S&P 500 with the lowest beta scores – a group that includes ConEd and McDonald's – are up on average by 12pc. Meanwhile, the 50 highest beta stocks, which include Citigroup and Best Buy, are up an average of 7pc.
In 2013, the 50 highest-beta S&P 500 stocks rose an average of 51.4pc, compared with 21.3pc for the 50 lowest-beta stocks. Investors who pursued the high-beta contingent have suffered. (Reuters)