Utilities companies have been on fire this year, outperforming the broader S&P 500 index as investors shifted toward safety and sought attractive yields. Among the sector options, one actively managed utilities exchange traded fund stands out.
The Reaves Utilities ETF (NasdaqGM: UTES) has been the best performing utilities sector-related ETF of 2016, rising 19.7% year-to-date. In contrast, the widely observed Utilities Select Sector SPDR (NYSEArca: XLU) gained 17.8% so far this year while the broader S&P 500 Index advanced 8.5%.
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UTES is an actively managed fund that tracks the utility sector, which includes utilities companies that are involved with products, services or equipment for the generation or distribution of electricity, gas or water.
The Reaves Asset Management team implements a value-based, bottom-up stock selection approach in picking utilities securities. The sub-advisor selects those that are attractive based on the potential for growth of income and capital appreciation over time.
Specifically, the sub-advisor will target utilities that exhibit conservative capital structures, solid balance sheets, history of potential for growing earnings and raising dividends, positive catalysts that may unlock value or lower-than-market levels of volatility, correlation or similar characteristics.
Through its investment style, UTES has a bigger tilt toward mid- and small-cap utilities. UTES includes 53.3% large-caps, 40.0% mid-caps and 6.7% small-caps. In comparison, XLU has 75.4% large-caps and 24.6% mid-caps.
“It is easier to turn the wheel in small- and mid-cap companies,” John Bartlett, portfolio manager and electric utility analyst at Reaves Asset Management and co-portfolio manager of the Reaves Utilities ETF (NasdaqGM: UTES), told ETF Trends in a call.