Reaves Asset Management is testing the exchange traded fund waters after launching the first actively managed ETF to cover the utilities sector.
According to a press release, the Reaves Utilities ETF (NasdaqGM: UTES) will invest in utilities without regard to market cap or dividend yield but seeks to deliver risk-adjusted total returns, employing a relative value strategy. UTES has a 0.95% expense ratio.
The active utilities ETF will try to outperform other utility funds by taking advantage of opportunities presented by differing regulatory, demographic, economic and climate trends in the U.S.
Utility company holdings will cover areas like electrical distribution and transmission, gas distribution, water distribution, independent power producers and YieldCos, along with vertically integrated and traditional utilities.
“Utilities provide an element of stability in investment portfolios due to their defensive nature, steady earnings, dividend growth, and quarterly dividend payments,” John Bartlett, UTES’ co-portfolio manager at Reaves Asset Management, said in a press release. “Our active approach focuses on strong risk-adjusted total returns as we feel it’s the best way to deliver superior value to our investors over the long term.”
The W.H. Reaves & Company, Inc. (dba Reaves Asset Management) will manage the fund based on quantitative and qualitative procedures. The firm, which was founded in 1961, specializes in utilities and energy infrastructure.
Specifically, the investment team will gauge a utility company’s management team and footprint in the overall industry. The fund managers will evaluate industry prospects and regulatory climate. Moreover, managers will consider company financials, valuations and other technical aspects.
For instance, UTES managers may overweight companies in areas with relatively better population growth, weather, and industrial activity to take advantage of regional variations.
The fund may also utilize financial leverage to enhance returns – UTES intends to use leverage initially of up to 38% of total assets.
The Reaves Utility Income Fund also keeps in mind tax-advantaged dividend income, seeking to maximize qualified dividend income for shareholders.
To get a sense of how the new active utility ETF may do, investors may take a look at the Reaves Utility Income Fund (UTG), which has $822.8 million in assets under management. The fund is down 10.1% year-to-date, but it has gained 4.2% over the past year and returned an average annualized 10.9% over the past decade. UTG has an adjusted total expense ratio of 1.16% for 2014 and a distribution rate of 6.40%.
For more information on new fund products, visit our new ETFs category.
Max Chen contributed to this article.