Understanding and navigating inefficiencies in the utilities sector.
How does investing in infrastructure companies provide natural downside protection? Reaves Asset Management CEO Jay Rhame explains.
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In the second quarter, the Reaves LTV Strategy Wrap Composite recovered a portion of last quarter’s COVID-induced decline. The advance was uneven, with growth stocks substantially outperforming defensive and value-oriented companies. Companies with visible long-term growth and economic re-opening stories were the winners.
Reaves Asset Management strives to invest in companies that we believe will be steady in good times and bad. We take comfort in knowing that essential electric, gas, water, and communications services will continue to be utilized even during this period of extreme economic disruption from the COVID-19 pandemic.
We are pleased to report that the Reaves Long Term Value Strategy (LTV)1 had a strong year in 2019 advancing by 31.4% gross of fees and 28.2% net of fees.
Reaves Institutional Composite appreciated for the third consecutive quarter thanks to strong performance from holdings in the utilities and communications sectors.
Reaves Institutional Composite had another strong quarter. The composite returned +4.1%, net-of-fees, in the second quarter of 2019, outperforming its benchmark return of +1.3%.
The first quarter of 2019 was Reaves’ third best quarter in our 41-year history of managing equity portfolios. Our institutional composite returned 15.8%, net of fees, with all sectors generating positive double-digit performance.
At the beginning of 2018, investment strategists forecasted rising interest rates, strong economic growth and accelerating corporate earnings because of the federal tax cut. The conclusion was to sell utilities.
One of the main reasons for Reaves’ historical outperformance is a contrarian investment philosophy – we look for growth in areas where investors typically focus on yield. When buying utilities, a manager is often making a macro decision, not a fundamental company decision.
The ERISA Composite returned 6.67%, net of fees, during the second quarter, outperforming both Reaves’ custom equal-weighted benchmark and the S&P 500 Index returns of 5.38% and 3.43%, respectively.
The ERISA Composite returned -4.3%, net of fees, in the first quarter which trailed the -0.8% return of the S&P 500 Index. Our investments in communications stocks struggled due to investor concerns about merger and acquisition activity and video subscription levels at cable TV companies.