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Vanguard Utilities Income Decelerates

After a great 2000, Vanguard Utilities Income stumbles.


It has been about 12 months of ups and downs for Vanguard Utilities Income Fund (VGSUX). After its portfolio registered a top-quartile return of 18.7% in 2000, performance has swung back around the category average so far in 2001 with a 6.6% loss through April 2, 2001. Its portfolio, full of traditional gas and electric utilities, flew high in 2000 as natural-gas prices soared through the roof, and as power shortages in California and elsewhere in the country demonstrated a yawning demand for electric services. In 2001, however, the shares have pulled back. In fact, the funds in the category that are performing best so far this year are the ones that found refuge in bonds and cash. Unfortunately, this offering eliminated its bond stake last year, and manager Mark Beckwith has kept a fully invested stance through it all. 

Despite their lackluster numbers this year, Beckwith isn't backing away from many of his top holdings. He is keeping relatively large positions in natural-gas providers like Exelon (EXC) and FPL (FPL) because he still thinks demand in the sector will be robust in coming years. Beckwith also likes those particular companies because their margins are healthy and they don't have huge exposure to Latin America, where Beckwith fears currency risk and inflation problems. Though it is a power producer, the fund's Enron (ENE) position has been cut because too much of its success as a firm depends on its broadband-trading business.

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Catherine Hickey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.