Pandemic Puts Recession-Resistant Investments in Spotlight

A global pandemic has halted industries across the world, leaving investors searching for the rare recession-resistant investment. We believe some of the most resilient businesses are the select companies providing the foundation keeping us connected and productive during the stay-at-home order.

Broadband infrastructure has been essential to keeping people connected. Friends and colleagues alike have stayed engaged on video chat apps, teachers have delivered lessons online, doctors have performed check-ups without leaving the home, and families have stayed entertained in their living rooms.

We believe the companies providing the backbone of our technological ecosystem – wireless towers, high speed data networks, and data centers – are some of the most durable growth businesses in markets today, both for the secular trends they support and the competitive moats around their business.

First, consider the growth potential that still lies ahead: Mobile wireless traffic growth continues unabated, with estimates projecting nearly 50% annualized growth in the coming years.1  We believe only an estimated 25% to 30% of developed market IT budgets are outsourced to the cloud, suggesting a long runway for cloud services to possibly drive future economic growth.

But only a limited number of companies will monetize this data flow. Consider how broadband infrastructure companies are insulated from competition:

  • Wireless Towers: Within the wireless tower industry, zoning and permitting issues make building new towers nearly impossible. Wireless architecture raises the barrier to entry more. This means the existing tower infrastructure is likely the future tower infrastructure. Long-term contracts with escalators should remain the norm.
  • Data Centers: Data centers are essentially landlords to cloud computing. A finite number of these facilities are network-dense, and provide businesses large and small with an on-ramp to the cloud, where applications can be run and modern business transactions can be executed. These facilities enjoy powerful “network” effects and high switching costs. As the facility accumulates hundreds of cloud, telecom, and enterprise customers, it becomes economically unthinkable for businesses to reject the low-cost, mission critical nature of the co-location model. Customers sometimes refer to this dynamic as a tax on the internet. Investors think of it as a great setup for high returns on capital.
  • Broadband Cable Networks: Cable networks were purpose-built for video applications and have since been reallocated for broadband use. In most of the country, building competing infrastructure was never going to be economic. Thus, regional cable providers became the primary conduit to the internet in most American homes.

At Reaves, we have a 42-year history in “essential service” investing. Our investment focus lies solely in the industries that form the foundation of a modern economy. The necessity of these businesses has historically led Reaves ERISA Composite2 to outperform the S&P 500 Index3 over the long term, largely by holding up in economic downturns when the market appreciates resilient business models most. As the global economy faces its most severe threat since the great financial crisis, we believe these companies deserve a closer look.


Q&A with the CEO & Co-Portfolio Manager of Reaves Asset Management, Jay Rhame


Reaves Asset Management is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Registration does not imply any skill or training. Reaves is a privately held, independently-owned “S” corporation organized under the laws of the State of Delaware.

The information provided in this blog does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities and sectors listed. Investors should consider the investment objective, risks, charges and expenses of all investments carefully before investing. Any projections, outlooks or estimates contained herein are forward looking statements based upon specific assumptions and should not be construed as indicative of any actual events that have occurred or may occur.

1Cisco Global Cloud Index, 2016-2021

Reaves’ Long Term Value Strategy (Reaves LTV Strategy) seeks a high risk-adjusted total return. The strategy tends to be invested in relatively larger companies with strong balance sheets, good cash flow and a history of dividend growth. Core positions are accumulated in financially strong, high-quality companies and generally have the following characteristics: strong management, above industry-average growth rates, large/mid-market capitalization and low price-earnings multiples.

2Reaves performance data is the Reaves LTV ERISA Composite and, unless otherwise noted, all data is net of fees. The Reaves LTV ERISA Composite reflects the dollar-weighted return of all corporate ERISA pension accounts with assets of at least $1,000,000 under management for all periods presented (the minimum was $900,000 during the period 08/31/10-06/22/12). Returns are time-weighted and include the reinvestment of all dividends and other earnings, net of commissions. The LTV ERISA Composite does not reflect all of the Reaves’ assets under management. The LTV ERISA Composite ended on 12/20/19.

Beginning December 2019, Reaves LTV Strategy is represented by the LTV SMA Wrap Composite. This composite contains those LTV discretionary portfolios with wrap (bundled) fees. Wrap accounts are charged a bundled fee which includes the wrap sponsor fee, as well as, Reaves’ investment advisory fee. Due to compliance requirements, the net-of-fees calculation is computed based on the highest annual fee assigned by any wrap sponsor who utilizes this portfolio in an investment wrap program (300 basis points from 1/1/03 through 12/31/16 and, effective 1/1/2017, 250 basis points).  The LTV SMA Wrap Composite performance consists of money-weighted, time-weighted returns and it includes the reinvestment of all dividends and other earnings. The inception date of the composite is December 2002; however, the composite was created in January 2013. This composite has been managed in a similar manner to the  LTV ERISA Composite which ended in December of 2019. The LTV SMA Wrap Composite does not represent all of Reaves’ assets under management.

3The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The typical Reaves portfolio includes a significant percentage of assets that are also found in the S&P 500. However, Reaves’ portfolios are far less diversified, resulting in higher sector concentrations than found in the broad-based S&P 500 Index.

Past performance is no guarantee of future results.
All investments involve risk, including loss of principal.


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