In a low interest rate world, investors looking for a steady, safe income along with potential capital growth have turned to utilities.
But while many Canadian investors stick to utilities with a domestic focus, or one that includes Canadian and US companies, Harvest Portfolios Group captures a broader opportunity. It has created a global utilities fund that includes leaders in Canada, the US and Europe.
Almost half of the companies (47%) in the Harvest Equal Weight Global Utilities Income ETF (TSX: HUTL) are European utilities offering access to the biggest and most critical infrastructure assets in those markets.
Utilities are vital to the economy, providing basic energy, power and telecom needs. They are the underlying systems we depend on to improve productivity and stimulate growth. So, they tend to be large and are often monopolies or near-monopolies.
This means limited competition and a high degree of regulation, but steady cash flows from large, stable customer bases. Everyone needs electricity or natural gas to heat homes or factories whether the economy is strong or in recession. We expect our internet connection to be fast and our cellphones to have service all the time.
Investments in these sectors are unlikely to yield large short-term gains, but dividends tend to grow over time. That’s quite attractive in a low yield world.
The Harvest Equal Weight Global Utilities Income ETF was launched in January, 2019 and invests in an equally weighted portfolio of 30 companies. These include telecommunications, oil and gas storage and energy transportation. The ETF is designed to provide a consistent and competitive monthly income with an opportunity for growth.
The sector weights are about 50% utilities, 35% telecoms and 15% pipelines and the fund benefits from the Harvest covered call strategy to enhance yield. Harvest is the second largest option writing firm in Canada with eight of its 13 ETF’s using option writing strategies.
The strategy involves selling a portion of the potential rise in stock price in exchange for a fee. The fee becomes part of the return which limits the capital gain slightly, but it also acts as a cushion if share prices fall. Here is a more detailed explanation.
Some of the holdings in the ETF such as Telus, BCE, Enbridge and TC Energy, are household name for Canadians. Europeans will be as familiar with some of the other names in the ETF. They include:
Vodafone Group Plc: This British multinational telecommunications company is the largest cell phone and fixed network operator in Europe. It also has operations in the Middle East, Africa and Asia and is one of the largest telecom providers in India. It employs 94,000 people and has 330 million customers. Its latest full year revenues were US $51.2 billion and a market capitalization of US $44.8 billion.
Fortum Oyj: While based in Finland, Fortum Oyj generates electricity in Germany, the UK, Russia, the Netherlands and the Baltic Rim area. It is Finland’s largest company and operates power plants, including co-generation plants and offers waste management and recycling services. Fortum had 2020 revenues of €49 billion (US $41.6 B) and a market capitalization of US $23.2 billion.
Deutsche Telekom AG: This German company headquartered in Bonn is one of the world’s largest integrated telecommunications companies, with 242 million mobile customers. It operates in more than 50 countries and employs 226,000 people. It had revenue of €101 billion in 2020 US $85.5 B) of which about 66 percent was generated outside Germany. Its market capitalization is US 98.3 B.
To find out how your clients can benefit from this strategy call 1.866.998.8298.
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