The Utility Sector

Nate Crosby |
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The Utility Sector

Spotlights on 11 S&P 500 Sectors  

As you know, we’ve kicked off a series of podcasts to look deeper at the 11 sectors of the S&P 500. We’re also giving this short summary a shot for those of you that prefer written content. Here you’ll see a high-level overview of what we’re discussing week-to-week with the trade-off of the podcast being more in-depth – plus the added bonus of Nate & Derek’s priceless (some say nerdy) banter! In fact, at the end of the utility podcast they invited me to attend a future session and referenced grilling me – wow guys, can’t wait! Welcome to the team, am I right?! 

 

Spotlight #1 – Utility Sector 

What makes up the utility sector?

The easiest way to think of this is your utility bills. This sector is made up of companies that produce, generate, transmit things like energy, sewage, water, and natural gas. 

 

How should you invest in the utility sector? 

We tend to buy utilities as a defensive play. This is also a good opportunity to diversify your portfolio with non-correlated assets. 

So, what does that mean exactly? When the economy is cooling down the Fed will tend to reduce interest rates. Since utility companies carry debt (think massive infrastructure) lower interest rates should drive higher profits for companies in this sector.

Pro tip: we recommend that you keep your eye on this sector as utilities are historically not a ‘set and forget’ type of investment.

 

Is the utility sector positioned to grow in 2022? 

Most signs point to yes! 

There are benefits to being the worst-performing sector for a given year because historically (7 of the last 12 years) that sector was not the worst-performing sector two years in a row, and the worst-performing sector tends to be among the better-performing sectors in the following year. There are, of course, some anomalies but it’s rare to be the worst-performing two years in a row.

 

What does this mean for Crosby Advisory Group?

Welcome to the party, utility sector (SPDR ETF to be exact)! 

We’ve added the utility sector to our investment portfolio for this year. Nate recently explained tilts – adding a small concentration to the portfolio in an investment or sector that appears to have a growth advantage going forward – so that means we are taking the worst-performing sector of 2021 and adding it to our portfolio for this year. 

 

Watch List: 

Nate’s Picks 

  • NEE – NextAir Energy – largest stock – 16-17% of the sector 
    • Clean energy (Solar) but also coal, nuclear – well-rounded energy company 
    • 20.29 CAGR since 2009 
  • American Waterworks 
    • 21% CAGR since 2009

 

Derek’s Picks 

  • Duke Energy 
  • Dominion 
  • AEP 

 

What’s up next?

Consumer Staples