As investors turned to income generating alternatives in a stubbornly low yielding environment, utilities sector and related ETFs have enjoyed a strong year, with one standout active ETF option also celebrating a two year run.
The Reaves Utilities ETF (NYSEArca: UTES), an actively managed utilities ETF, has increased 15.9%, compared to the Utilities Select Sector SPDR (NYSEArca: XLU), which tracks utilities companies in the S&P 500, rose 13.8%. UTES also comes with a 2.00% 12-month yield.
UTES, which launched back in September 23, 2015, is the first and only actively managed utilities-related ETF and has celebrated two-years of outperforming its benchmark.
“Reaching the two-year mark is an important milestone for us,” John Bartlett, co-portfolio manager of UTES, said in a note. “In our view, the fundamental outlook for utilities is positive with a supportive regulatory environment and multiple opportunities for companies to make needed investments in infrastructure and earn an acceptable return.”
The fund’s co-portfolio manager Jay Rhame credits the fund’s outperformance on Reaves’ ability to incorporate its half-century experience in the utilities sector, such as the money manager’s understanding of the industry’s complex regulatory landscape at both the state and federal level. Due to the active ETF’s greater flexibility, UTES can avoid some of the downside that a passive index-tracking fund captures and potentially recover upside from other areas.
Furthermore, the fund managers take advantage of both regulatory and regional variances by overweighting utilities in areas with relatively more attractive population growth, weather, and industrial activity. The Reaves team can also evaluate operating risks arising from non-core activities and adapt to risks with quick changes to the portfolio.
“Our ability to invest in companies regardless of their inclusion in an index is a key aspect of our Fund’s active strategy,” UTES’ co-portfolio manager Jay Rhame said in a note. “By omitting certain indexed stocks and adding others not in an index, we seek to avoid some of the downside that a passive index-tracking fund captures in full and recover upside from other areas.”
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.
UTES’ top holdings include Nextera Energy 13.6%, Sempra Energy 8.1%, PG&E Corp 7.9%, Nisource 5.3%, Nextera Energy Partners 5.1%, Infrareit 5.1%, American Water Works 4.9%, DTE Energy Company 4.9%, Eversource Energy 4.7% and WEC Energy Group 4.6%.
For more information on the utilities sector, visit our utilities category.