# so what would overweight in utilities mean today?



## 4570 (Aug 2, 2009)

Good day

(am sure glad I did not react and sell IPL, ALA, PPL about a year ago when a possible increase in interest rates was the news)


For a retirement income portfolio what % would you consider overweight in utilities today? 

What signals of rising interest rates should I react to?


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## Pluto (Sep 12, 2013)

4570 said:


> Good day
> 
> (am sure glad I did not react and sell IPL, ALA, PPL about a year ago when a possible increase in interest rates was the news)
> 
> ...


1. I'm glad you are glad. 
2. I'm not really knowledgeable on asset allocation, so don't know. 
3. I need to clarify your last question. It sounds like you want to predict in advance when rates will rise, so that you can sell utilities before they drop. If so, I'm not really sure that can be achieved with precision. But if that is really what you want to try, I keep an eye on US unemployment: the lower it goes, the greater the odds of a rate increase. They most definitely want it below 6%, so I'd be surprised if rates went up before that was achieved. Too, even if unemployment goes below 6%, it doesn't guarantee an immediate raise in rates unless they think inflation increases is a threat. 

Another approach may be to evaluate what these companies are worth vs their price. If there price exceeds their worth, you might consider cutting back. If their price doesn't exceed their worth, why not keep them? With this approach, you don't have to try and guess when rates will go up.


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## gibor365 (Apr 1, 2011)

4570 said:


> For a retirement income portfolio what % would you consider overweight in utilities today?


If you mean by income - dividend, than why do you care so much about interest rates? in utility space I hold FTS, EMA and SO:NYSE and don't intend to sell it regardless interest rates


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## My Own Advisor (Sep 24, 2012)

More than happy never to sell my utilities. I would think overweight would be more than 10% of your portfolio; at least for me it is. TSX is 2% utilities. FTS, CU, EMA are long-term holds.


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## AltaRed (Jun 8, 2009)

4570 said:


> (am sure glad I did not react and sell IPL, ALA, PPL about a year ago when a possible increase in interest rates was the news)


I wouldn't call any of those 3 utilities, any more than TRP or ENB is a utility. 

Just so you know though, given that credit rating agencies rate ALA and PPL preferred stock Pfd3 (below the Pfd1 and Pfd2 rated prefs that are considered investment grade), it would suggest to me ALA's and PPL's balance sheets are not stellar and stock price impact would be hit harder in any bond yield curve increase (as compared to the short term rates set by Central Banks). IOW, watch for 5 and 10 year bond yield changes.


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## My Own Advisor (Sep 24, 2012)

Agreed AltaRed, time to watch the yield curve.... What's your guess on when rates will go up?


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## AltaRed (Jun 8, 2009)

My Own Advisor said:


> Agreed AltaRed, time to watch the yield curve.... What's your guess on when rates will go up?


No idea, but I have a hunch there will be another, perhaps temporary move like the summer of 2013, near the end of this year, partly as a result of the mid-term US elections where the Republicans will likely gain ground, and partly due to the fact that the sky is not falling when the Feds stop their Treasury purchases. I just don't think it will stick. I am banking more on 2016 for a slow upward trend of GOC5 and GOC10 bond yields and then only by perhaps 100-150 bp over time. I just don't see GOC5 going higher than 3% for a very long time. FWIW, I am not a believer of hyperinflation. Global trade is only getting bigger every year and global GDP growth is slow enough that there is enough capacity in the global economy to temper threats of hyperinflation long term.


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## 4570 (Aug 2, 2009)

_I wouldn't call any of those 3 utilities, any more than TRP or ENB is a utility. _
Thanks AltaRed.
Perhaps I should have said 3 interest rate sensitive instead.


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## tygrus (Mar 13, 2012)

Utilities face certain risk from a lot of technological change just over the horizon. Power companies will have their monopolies shaken when solar gets a bit cheaper and the storage problem is solved by Tesla. 

Pipeline companies can be assured there will be less crude flowing as the US becomes self sufficient and fuel efficiency take hold. We do not have a coastal port to ship it anywhere. A lot of oil sands will stay in the ground permanently. Natural gas companies could benefit but there is a lot of it around.

In the near future, city and regular transportation will be in electric vehicles with gas backup and charged at night in your own garage probably from solar panels on the roof. Hi intensity fuel needs will be reserved for things like agriculture and the like so they will still need oil.


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