The so-called gentailers didn't seem such defensive, dependable investments after Contact Energy reported its interim result on Monday.
Instead of the capital return shareholders were expecting, the company said it was considering investing its free cash-flow - estimated at $1 billion over the next five to six years - into geothermal projects overseas.
It's a bit like your boss suddenly announcing the bonus you've been waiting for is going to be sunk into risky venture capital investments. You might triple your money, or get nothing at all.
Contact shareholders overwhelmingly indicated they would prefer the cash up front, with the stock falling 9 per cent on Monday, wiping about $450 million off the firm's market capitalisation.
Contact, whose shares closed down 9c at $6.20 last night, says overseas expansion could combat stagnant or falling demand growth in New Zealand.
And chief executive Dennis Barnes is keen to distance the firm from Mighty River Power's mixed success in geothermal ventures overseas. "I think the big difference is that we'll have a long-term vision and an executable plan that has scale," he said. "That's the big difference."
Time will tell.
The Contact situation is a wake-up call for investors, who have been piling into NZX-listed power firms for their attractive dividends and the defensive positions they supposedly provide against an uncertain global economic environment.
"The gentailers are not without their risks," says Shane Solly, an analyst and portfolio manager at Harbour Asset Management. "The market's certainly been paying for them on the basis that they're bonds, rather than equities." Other power stocks got knocked around on Monday after Contact's announcement.
However, Meridian Energy's half-year result on Wednesday - in which the company flagged a $625 million capital return over the next five years - would have helped to rekindle enthusiasm in the sector.
Meridian instalment receipts, which have returned more than 14 per cent this year, hit a new record high yesterday, closing up 3.28 per cent at $2.045.
Origin takes a hit
Australia's Origin Energy, which owns a 51 per cent stake in Contact, is feeling the pinch from currency movements and falling oil prices.
The Sydney-based company yesterday posted a half-year net loss of A$25 million, compared with a A$322 million profit in the same period a year earlier.
Analysts were speculating this week that Origin could be keen on Contact keeping its cash within the business - rather than making capital returns - because that could make the Australian firm's balance sheet look stronger.
Origin shares closed up A2c at A$12.75 on the ASX yesterday.
Devon Funds Management's popular Alpha Fund has been closed to new investment after reaching $130 million.
In a letter to clients, the Auckland-based firm said capping at that level would provide the fund with flexibility to move between cash and the 10 to 15 Australasian stocks it invests in.
The Alpha Fund, launched in 2010, has returned 21.3 per cent a year over the past three years, before fees, expenses and tax.
Stocks in its portfolio include Vista Group - the New Zealand cinema software developer that has enjoyed a more than 80 per cent share price gain since its August listing - and insurer Tower. It's also invested in retirement village operator Metlifecare and Australian medical technology manufacturer ResMed, one of NZX-listed Fisher & Paykel Healthcare's main competitors in the sleep apnoea device market.
"What the fund represents is the very best investment ideas that we have in the firm," says portfolio manager Slade Robertson. "The investment process has produced some really good ideas, both in New Zealand and Australia, over the last five years."
He says the fund is presently 40 per cent cash, which enables it to quickly take advantage of undervalued stocks or market volatility.
Hope in volatility
It doesn't sound like NZX's equity derivatives have got off to a flying start.
Discussing the exchange operator's full-year result on Tuesday, chief executive Tim Bennett said the company would have liked to have seen a stronger uptake of the index futures contracts it launched last May.
But demand for the contracts, which trade off the NZX20, could increase if equity markets become more volatile, he says.
Fund managers sometimes use stock futures - which are a key component of most developed markets - to hedge against portfolio risk.
Increased volatility could be a double-edged sword, however, as it would probably make companies less keen to carry out initial public offerings on the exchange.