A: The big plus is that California doesn't intend to permit another statewide energy crisis or major utility bankruptcy.
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- In a volatile market, examine college savings options
- Hosts can take steps to minimize party perils
- Gift of books could offer choice guidance
- The savings game
- The Leckey file
- Getting started
- Spending smart
- Taking stock
- Some experts see discounts in stock market's volatility
- The week ahead
- Andrew Leckey
Jan. 13: Mattel's offerings are playing well in overseas markets
Jan. 6: Sun Microsystems remains a work in progress
- Credit Ratings
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The holding company for Pacific Gas & Electric serves 5.1 million electric customers and 4.2 million gas customers in central and northern California. Its 118 power plants provide 40 percent of its power annually, with the rest coming from sources such as hydroelectric or out-of-state purchases.
California leadership in "green" initiatives gives the firm added ability to raise rates to support renewable-energy projects and upgrade aging infrastructure. It expects to receive state incentives for implementing various energy-efficiency programs.
It recently completed a purchase agreement with Silicon Valley start-up Ausra Inc. that will provide 177 megawatts of electricity generated by a solar thermal plant to be built in San Luis Obispo County.
Nonetheless, the share price of PG&E (PCG) is down 2 percent this year following a gain of 27 percent last year. Net income fell 29 percent in the third quarter because of cost pressures and several one-time gains in the year-earlier quarter.
Its stock price declined following the earnings announcement, on concern that it might not be able to invest as aggressively in energy-efficiency measures to propel its overall growth. Larger risks are that the attitude of California regulators may change, rate hikes could meet stiff customer resistance, or state environmental restrictions may cut electricity supply.
PG&E shares receive a consensus analyst recommendation of "buy," according to Thomson Financial. That consists of four "strong buys," five "buys" and six "holds."
Bankruptcy permitted the firm to revive its financial standing. It sold off its wholesale merchant power-generation assets as part of the bankruptcy reorganization. Debt is about 50 percent of capital, and strong cash flows should help it remain financially strong.
PG&E earnings are expected to increase 8 percent this year versus 16 percent predicted for the diversified utility industry. Next year's forecast of an 8 percent rise compares with 11 percent projected industrywide. The five-year annualized growth rate of 9 percent is about the same as its peers.
The firm was recently ordered by California regulators to refund $35 million to 230,000 customers affected by a faulty billing system.
Q: Please give your opinion of FBR Focus Fund.--M.L., via the Internet
A: It focuses on a portfolio of 35 to 40 carefully selected stocks and often holds a large portion of assets in cash until it can put its ideas to work.
Reopened to new investors this year, it has about 29 percent of assets in cash. That has been a drag on results.
The $1.6 billion FBR Focus Fund (FBRVX) is up 9 percent over the past 12 months to rank in the bottom fourth of mid-cap growth funds. Its three-year annualized return of 13 percent places it in the upper half of its peers.
"FBR Focus has been a very good fund to own but has had a slow year this year," said Andrew Gunter, analyst with Morningstar Inc. in Chicago. "While manager Chuck Akre believes there are enough opportunities for new inflows since opening the fund to new investors again this year, he said it might take a couple of years to put all the money to work."
Akre is a stock picker who makes big bets on just a few market sectors, with one stock often representing around 10 percent of assets. Examples of smart choices he has made include Penn National Gaming Inc. before it was acquired and fast-grower American Tower Corp.
A long-term investor with low portfolio turnover, he selects small to mid-cap companies that can generate a high rate of return on investor capital. He has managed this fund since its 1996 inception and advises it through his private asset-management firm, Akre Capital Management.
"Akre is a buy-and-hold guy who can afford to be that way because he's proven good at finding companies that compound capital at above-average rates," Gunter said.
Consumer services represents nearly half the fund's assets, with financial services and telecommunications other concentrations. Top holdings are Penn National Gaming, American Tower, Markel Corp., CarMax Inc., Bally Technologies Inc., Pinnacle Entertainment Inc., SCP Pool Corp., 99 Cents Only Stores, Simpson Manufacturing Co. and Monarch Casino & Resort Inc.
This "no-load" (no sales charge) fund requires a $2,000 minimum and has a 1.38 percent annual expense ratio.
Q: Does it make sense to put exchange-traded funds into a retirement account? I'm thinking of diversifying my holdings, which have become quite large. Should I have ETFs in there, and how do they fit in? --L.S., via the Internet
A: ETFs, which trade like stocks on an exchange and represent a basket of securities in an industry or market index, are an increasingly popular investment being considered more seriously as a retirement-plan option.
"Due to their low cost and the fact you know exactly what you're investing in, ETFs are an excellent vehicle for a retirement account," said Marilyn Capelli Dimitroff, certified financial planner and president of Capelli Financial Services Inc. in Bloomfield Hills, Mich. "You can easily construct an entire portfolio of them because there are so many different types."
You can build a broad, low-maintenance portfolio with as few as three ETFs, such as a total stock market ETF, all-country ETF and a total bond ETF.
Because ETFs can be bought and sold throughout the day, there are brokerage transaction costs involved, she noted.
Yet, because they don't have active management, their expense ratios are low and they are a viable option for a buy-and-hold investor.
Andrew Leckey is a Tribune Media Services columnist. E-mail him at firstname.lastname@example.org.