I am in the process of building a position in ZUT. I'm about 70% there. Most of the remaining funds to attain my full position will be sourced over time (3-5 months). However, with the recent run up in NWC and its subsequent impact on my asset allocation, I will be trimming a bit of it (NWC) and plan to direct it towards ZUT.
Q#1 = In the past you have indicated not to worry about market timing, especially when it comes to ETFs. However, with the rise in interest rates and the negative impact on ZUT, roughly when do you think is a reasonable time to start the process of adding (again) to the utilities sector (specifically ZUT)? While the general consensus is that rates have peaked, when do you think the utility sector to start to recover its losses...do rates actually have to decrease or just plateau? Also, you have usually answered this type of question with spread your money out over a number of months and get on with it (my paraphrase). Same answer?
Q#2 = Tied in with this a question => relative valuation of ZUT? Where does it's current valuation compare to its historical range? Is it cheap now or pricey?
Thanks for your help...Steve
We do not like market timing generally, but when there is a fundamental shift we think some concessions can be made. The question of course is whether interest rates are about to experience such a shift. Our bet is 'probably'. Really only a spike in inflation could derail this now, and with oil at $70. the job market easing a bit, 0% GDP in Canada and Walmart talking about lower prices this seems unlikely. Rates don't actually have to decline for utilities to run. Investors just need to believe that they won't rise, and a decline is the next step. This is likely happening now. But it can take a while and we would see no compelling reason to do an 'all at once' buy in the sector, especially if one is 70% there already. ZUT's holdings today have an average P/E of 15.9X. As an ETF of course this is a blend of its individual holdings and is about 1 to 2 points below historical averages. Note though that valuation average did rise during the period of 0% interest rates.
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