The utilities sector can be stereotyped as boring or slow moving. Investors can add some excitement with the Invesco DWA Utilities Momentum Portfolio (NASDAQ: PUI).
PUI tracks the DWA Utilities Technical Leaders Index. That index “is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 securities from the NASDAQ US Benchmark Index. Relative strength is the measurement of a security’s performance in a given universe over time as compared to the performance of all other securities in that universe,” according to Invesco.
High-flying technology names might get all the fanfare in the equities market, but slow-and-steady plays like utilities deserve a careful look. While they might not garner the same attention, there’s something to be said about PUI’s reliable gains.
Unpacking PUI’s Potent Holdings
“Utilities closed out 2020 as the second-worst-performing sector behind energy–and therefore entered 2021 with a much more attractive investment proposition from a valuation standpoint. In addition, the sector’s 3.3% average dividend yield remains exceptionally attractive relative to ultralow interest rates,” according to Morningstar.
Some of PUI’s 43 holdings look particularly appealing today. That includes Edison International.
“Edison International (EIX) offers a triple play of value, growth, and income. California political risk will always be a concern for Edison. However, California’s progressive energy policies also create more growth opportunities than most other U.S. utilities. Edison’s electric-only business, recent regulatory success, and $5 billion annual investment plan give us confidence that it can grow earnings 6% beyond 2020. Management recently raised the dividend 4% and we expect that pace to pick up. Edison has stakeholder support to harden the grid against natural disasters, integrate renewable energy, and support electric vehicle adoption,” notes Morningstar.
Another PUI holding could also be a driver of upside for the fund in 2021.
“Across much of American Electric Power’s (AEP) vast service territory, states were slower than others to adopt renewable energy standards,” adds Morningstar. “This has resulted in slower renewable energy growth for AEP thus far. But state regulators overseeing AEP’s service territories are now embracing renewable energy development, providing significant growth opportunities beyond our five-year forecast. AEP will also benefit from investment opportunities in its transmission and distribution network, which is the largest in the U.S., as other utilities also connect renewable energy projects.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.