Reaves Asset Management Blog

Regulatory Alpha: Why Investors Should Embrace Politicized Industries

Written by The Investment Team at Reaves Asset Management | Jun 24, 2021 8:46:42 PM

Some investors may see politics and regulations as a risk. We see them as a potential opportunity. At Reaves, our sole focus is on essential service infrastructure. A byproduct of the necessity of these services is that the companies we invest in are highly regulated, and often, highly politicized.

In a call last month, hosted by Havener Capital Partners for the benefit of investors, Reaves’ President John Bartlett explained why we embrace the regulatory details. A synopsis of his comments follows:

John Bartlett: I think we could all agree just simply reading the headlines over the last six months that retail electricity and retail natural gas are highly politicized commodities. So, understanding the regulatory dynamics for these industries is just as important - if not more so - than understanding a lot of the things that are going on at the business. For every utility that you follow, you really have to follow two situations. You have to follow the regulatory dynamic and you have to follow the company itself. Utility companies may seem like they're in a fairly pedestrian business, but they often find themselves in very complicated political situations and as an investor, you have to enjoy that, you have to really be into it. One of the major reasons we exist is because you've got a small collection of people that are kind of hyper-focused on these things.

There are 50 state regulators and one federal regulator. They all have a different way of doing things. One of the things that we think we do pretty well is staying on top of regulatory changes and putting ourselves in the place where companies that we're invested in have a superior return on their invested capital.

To hear more about our concept of regulatory alpha, our essential service infrastructure strategies and the problems they solve for investors, we invite you to listen to the full call. Please click graphic below to gain access to the call replay.