Utilities Sector: Two Stats Investors Should Know

September 21, 2021

This month, the Virtus Reaves Utilities ETF (UTES) celebrates its six-year anniversary. Just as it was six years ago, UTES remains the only ETF which applies active management to the selection of utilities stocks – a subset of the equity market that we believe investors should consider giving more attention.

In our view, the unique, defensive characteristics of utilities sets them apart from much of the investable equity universe and warrants a specialized allocation to the sector. Those defensive characteristics are derived from the utility business model. Most utilities are capital intensive monopolies with extremely high barriers to entry, limited competition, and the ability to produce consistent, sustainable cash flows year after year. As a result, many utility stocks have steadily grown earnings and dividends, even in challenging economic periods.

Utilities are also highly regulated, which we believe gives us an edge over other investors due to our decades of experience monitoring and analyzing regulatory developments in the sector at both the state and federal levels.

As the charts below show, collectively, these characteristics have helped the sector achieve the lowest beta and best downside capture of all the major industry sectors over the past 20 years.

2021.09 Reaves Blog UTES Anniversary Chart 1.1

2021.09 Reaves Blog UTES Anniversary Chart 2.1

Defensive – With Growth

As we’ve discussed in a prior blog, a promising theme that is fueling growth for utilities is the demand for renewable energy. The sector is currently in the early innings of a massive capital expenditure cycle that may ultimately make the electric grid greener.

Utility companies earn a set return on the amount of invested capital they deploy. When there are opportunities to invest in a long-term theme like renewable energy transition, well-positioned utilities may be able to generate growth in earnings and dividends for years to come.

Does Your Portfolio Need Defensiveness?

With the prices of U.S. equities recently hitting new highs (as measured by the S&P 500 Index), some investors may be looking to add more low-beta, defensive equity strategies to their equity allocation. We believe an active, utilities-focused strategy could fit the bill.

To learn more about our essential service infrastructure approach, we invite you to read our investment brief on this area of focus. To obtain a prospectus for the Virtus Reaves Utilities ETF, which contains this and other information, visit the following website: www.reavesetfs.com or call 1-888-383-0553. Please read the prospectus carefully before investing or sending money.

The Case for Essential Service Infrastructure

Disclosures and Definitions:
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.

The term active management implies that a professional money manager or a team of professionals is tracking the performance of a client's investment portfolio and regularly making buy, hold, and sell decisions about the assets in it.

Beta measures a stock’s volatility relative to the broad market. A stock with a beta higher than 1.0 has historically been more volatile than the market, while a stock with a beta lower than 1.0 has been less volatile.

The Downside Capture Ratio is the ratio of the manager’s overall performance to the benchmark’s overall performance, considering only quarters that are negative in the benchmark.

The long-term capital expenditure cycle occurs when the large capital assets of a company go through the entire duration of their lifespan.

The 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.

The inception date of Virtus Reaves Utilities ETF (UTES) is September 23, 2015.

Risk Considerations: Exchange-Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities it is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk. Utilities Sector Concentration: The fund’s investments are concentrated in the utilities sector and may present more risks than if the fund were broadly diversified over numerous sectors of the economy. Market Volatility: Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issue, recessions, or other events could have a significant impact on the fund and its investments, including hampering the ability of the fund’s portfolio manager(s) to invest the fund’s assets as intended. Prospectus: For additional information on risks, please see the fund’s prospectus.
Past performance is not a guarantee of future results.

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Past results do not guarantee future performance. Further, the investment return and principal value of an investment will fluctuate; thus, investor’s equity, when liquidated, may be worth more or less than the original cost. This document provides only impersonal advice and/or statistical data and is not intended to meet objectives or suitability requirements of any specific individual or account.

All investments involve risk, including loss of principal.
All data is presented in U.S. dollars.
Cash is cash and cash equivalents.
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