Utility stocks have been a primary beneficiary of subdued low interest rates. The regulated companies in the sector benefit from stable returns on equity on that component of their investment, and have seen lower costs on the long-run financing put in place for the debt component that finances infrastructure investment. In the nearly ten-year series that I have been using for this series, utilities (XLU) have bested the S&P 500 (SPY) by 0.8% per year. Equal-weighting utilities (RYU) has beat the S&P 500 by two percent per annum. Of course, one of the historical benefits of owning utilities is lower volatility and drawdowns, and that held over this time horizon as well. Over this sample period, equal-weighting utilities has produced better absolute and risk-adjusted returns as compared to cap-weighted utilities and the market index.
When I first set out to write these articles, I thought… Read More …