Workhorse companies are being overlooked by investors because there is a fundamental lack of understanding about how they operate and the impact regulation has on them.
This is according to Reaves Asset Management, which sat down with International Adviser ahead of the announcement it is launching a Ucits US Utility Fund.
A well-known name in the United States, where it has operated for 41 years, the company is a newcomer to the international market.
Pool of opportunity
Subject to regulatory approval, the Reaves Utility Income Ucits fund will be domiciled in Ireland and managed by MontLake Management, with a team of portfolio managers at Reaves providing investment management services.
Using a bottom up, best ideas approach; it offers investors the opportunity to gain exposure to “highly liquid, publicly listed equities in the US utilities sector”.
Jay Rhame, chief executive of Reaves, told IA: “We focus on heavily regulated industries, where there is less competition and more opportunity to do well.”
The fractured nature of the US sector, compared to the more monopolised European utility landscape, means there are more companies to choose from, he added.
The fund will invest on a long-only basis in equities and equity-related securities of US utility companies involved in infrastructure-related products, such as electricity, gas or water, telecommunications and energy companies.
It is aimed at institutional, family office and retail portfolios and will be available in USD, GBP, CHF and Euro share classes.
Holding investors back
Utility companies have not traditionally been something that has incited much investor excitement.
Rhame highlighted concerns around rising interest rates and misconceptions of the regulatory impact on utility companies as perceived barriers for investors.
“Interest rates are a factor, not the factor,” he said.
Ron Sorenson, chief investment officer and portfolio manager, added: “GDP growth is irrelevant, the sector has tremendous resilience to recessions.”
Noise coming from the Federal government and the White House about infrastructure projects and a return to coal should also not put people off investing in US utilities, the pair added.
Rhame said: “The Federal government has very limited power over utility companies, as the individual states can have their own targets.”
Meaning that comments from Donald Trump have less influence than those coming from a state’s governor.
“There is also a misconception that utility companies don’t grow,” said Sorenson.
Pillars of need
In addition to utility companies, the strategy also has exposure to communications and energy companies.
As the company explained, no modern economy can survive without these three sectors.
