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Utility stocks are ignored by many investors. They are often seen as boring, slow-growth, low-risk investments that, because they provide a reliable income stream, trade like bonds.
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The historical returns of utility stocks deserve respect. As the chart below highlights, not only did utilities outperform the broad stock market over the 50-year period, they did so with a beta of 0.50.
Sources: Bloomberg, eVestment
Past performance does not guarantee future results.
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There's also a view that a rising rate environment is an inopportune time to own both bonds and utility stocks. Our research tells a different story — one in which utilities performed far better than bonds. During the 50-year period from January 1973 through December 2022, we identified 273 months when interest rates were trending higher as measured by the 10-year U.S. Treasury yield. The average monthly return of the Dow Jones Utility Average during that period was 0.56%, or an annualized 6.89%, which far outpaced the -0.03% monthly average of the Bloomberg US Investment Grade Corporate Bond Index, or -0.36% annualized during the same period.
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Analyzing the utility sector remains complicated. Successful evaluation demands a deep understanding of the companies, their regulators, and the political environment by an experienced investment team. Learn more about the team of utility experts at Reaves Asset Management managing the Virtus Reaves Utilities ETF and Reaves Utility Income Fund.
