At Reaves Asset Management we believe our investment approach is differentiated by several elements, but one factor stands out: a narrow, steadfast focus on companies we believe have the steadiest earnings and dividend growth. Our objective has always been to manage the level of risk so that our clients have the confidence to remain invested for the long term.
The Reaves Long Term Value Strategy1 was profitable in 99.8% of all five-year rolling return periods2 since inception, from January 1978 to December 2019. The single unprofitable five-year period resulted in a cumulative loss, net of fees, of only 1.5%.3 Our annualized returns4 since inception have exceeded those of the S&P 500 Index5.
In a recent investment brief, we make the case for our focus on Essential Service Infrastructure, and why it deserves a place in broader portfolios where defensive equity strategies may be lacking. The short paper is a quick read, but the passage below highlights the essential service industries in which we invest, and why we believe they are positioned for steady, long-term growth:
“These outcomes are the direct result of embracing companies which we believe will stay in business for a very long time, steadily grow assets and cash flow and benefit from various new opportunities as they present themselves over time. For example, utilities are building new generation plants powered by advances in wind and solar technology. Operating expenses are declining as older fossil-fuel based generation plants are closed. Cable companies are becoming more profitable by transitioning away from their traditional multi-channel video services and toward the provisioning of high-speed broadband connections to meet insatiable data demands related to entertainment, education, and healthcare. Wireless tower companies are beneficiaries of each new upgrade in mobile network technologies and data centers continue to ride the wave of growth in cloud computing.
By investing in companies and sectors that provide such critical and vitally important services to consumers and businesses, the risk of owning stocks that suffer permanent impairments of capital is lower. We believe in this maxim: avoid the losers and the winners will take care of themselves. When the risk of an outsized loss is low, we can be more patient investors and let the power of steady compounding work in our favor. The number of companies in other industry sectors, such as technology and financials, that go out of business in any five-year time period is much higher and thus comes with more risk.”
For more on our essential service approach, we encourage you to download the full paper. It does a good job of putting our focus in perspective and explaining why such strategies are a complement to other equity strategies in a broader portfolio.
Disclosures:
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.
1Reaves’ 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.
Reaves 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.
2Rolling returns reflect the cumulative return on a continuously held investment over a number of consecutive periods, calculated monthly.
3The single losing five-year period was in the 5 years ended March 31, 2003.
4An annualized total return is the geometric average amount of money earned by an investment each year over a given time period. The annualized return formula is calculated as a geometric average to show what an investor would earn over a period of time if the annual return was compounded.
5The S&P 500 Index (“S&P 500”) 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.
Past performance is no guarantee of future results.
All investments involve risk, including loss of principal.
All data is presented in U.S. dollars.
Important Tax Information: Reaves Asset Management and its employees are not in the business of providing tax or legal advice to taxpayers. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax adviser.
