Utilities offer consistent income in up and down markets

April 24, 2019

Published by Harvest ETFs

Building power plants, generating electricity and building pipelines is expensive and the size and scale of the projects mean the projects take a long time to complete. Because of this, many utilities are monopolies, or near monopolies. The contractual nature of the pricing means that revenues are set and often include inflation-linked increases. As a result, utility stocks are attractive because of their reputation for providing steady cashflow (dividends) in  all economic conditions and regular increases as cash flow grows. When the financial markets hit a rough patch, utilities have the characteristics to offer stability.  

One of the risks of owning certain utilities is the concentration towards a specific region.  For example, a utility that is exposed to a specific province could be subject to the changing political environments. Or, a power producer in a specific US state that is exposed to a natural disaster. Holding a diversified basket of utilities related companies can help reduce some of the regional risks inherent in utilities.

Owning a basket can also help ensure that there is consistency of income, without relying on any one particular company for income generation.

Harvest Portfolios Group launched the Harvest Equal Weight Global Utilities Income ETF (TSX: HUTL), a global utilities ETF in January, 2019.

The fund is invested in an equally weighted portfolio of 30 of the largest global utilities, telecommunication services, oil and gas storage and transportation sub-sectors. This includes in solar, wind farm and other renewable energy production. 

As of March 31, 2019, the portfolio has 58% of its assets in North America with the next largest holdings in Spain (13%), the UK (6%), France (6%) and Switzerland (4%).  The ETF includes such Canadian names as TransCanada, Enbridge, BCE and Telus.

The portfolio has a management fee of 0.50% and the portfolio manager seeks to lower volatility by writing call options on selected names to provide additional income. 

For more on Harvest Portfolio Group click here.

 

The views and/or opinions expressed in the blog are of a general nature and are for informational purposes only. Blog contents should not be considered as advice and/or a recommendation to purchase or sell the mentioned securities or used to engage in personal investment strategies. Investors should consult their investment advisor before making any investment decision. 

 

 

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