This Isn't Your Grandfather's Utilities ETFs

As the sector most negatively correlated to changes in interest rates, it is not surprising that utilities, the third-smallest sector weight in the S&P 500, have been in the spotlight recently thanks to all the commotion surrounding the Federal Reserve.

The Utilities Select Sector SPDR XLU and rival utilities ETFs have been enjoying additional days in the sun after the Fed passed on raising interest rates earlier this month. Knowing that borrowing costs could remain close to zero for the another several months, it might not be a bad idea to roll a new utilities ETF out.

That is what New Jersey-based Reaves Asset Management did Thursday with the debut of the actively managed Reaves Utilities ETF UTES. Yes, that is correct. An actively managed utilities ETF is here and it makes sense when considering Reaves has over 50 years of experience in managing utilities investments across mutual funds and separately managed accounts. The company has been institutional assets for 37 years. 

“Reaves’ portfolio managers believe that employing an active strategy for UTES manages issues and unintended risks often inherent in a passive utilities benchmark.  An active strategy will allow for Reaves’ managers to navigate the complex regulatory landscape on both the state and federal level as changes in regulation arise.  UTES can take advantage of regional variances by overweighting companies in areas with relatively better population growth, weather, and industrial activity. In addition, many utilities are subject to commodity risk exposure related to the prices of electricity, natural gas, and coal. Reaves’ managers can evaluate operating risks arising from non-core activities and balance these risks with timely changes to the UTES portfolio,” said the firm in a statement.

The actively managed UTES will look to beat the S&P 500 Utilities Index. The new ETF is home to 22 equity holdings with Nextera Energy Inc. NEE and Dominion Resources Inc. D combining for 22.6 percent of the fund's weight, according to issuer data. 

UTES offers another advantage for investors over other actively managed funds: Daily disclosure of its holdings. Some issuers of actively managed products, including some wanting to wear the exchange traded label, are maintaining an old Wall Street mentality, refusing to disclose their holdings on a daily basis. That is not the case with UTES as investors can see the new ETF's holdings updated daily as is the case with most traditional, passive ETFs.

Reaves, which has over $2 billion in assets under management, “relies on both qualitative processes (management interviews, field research, macro factor analysis) and quantitative processes (modeling, valuation, technicals) to inform investment decisions,” according to the firm. 

UTES charges 0.95 percent per year, or $95 per $10,000 invested.