Virtus Reaves Utilities ETF

UTES

Market cap $1.46B

Increasing electricity demand tied to artificial intelligence (AI) expansion and data center growth drove increasing load forecasts and capital spending expectations for many companies in the sector. The Fund advanced 10.64% in the quarter, outperforming the S&P 500® Utilities Index (Utilities Index). The Fund continued to benefit from its exposure to companies levered to AI-related power demand.

The Virtus Reaves Utilities ETF offers active, concentrated Utilities exposure with $1.4B AUM and a 0.49% expense ratio. UTES has outperformed passive peers like XLU since inception with only modestly higher volatility. Significant allocations to independent power producers position UTES to benefit from AI-driven power demand growth, despite higher cyclicality and volatility.

Virtus Reaves Utilities ETF remains a buy, driven by strong performance and exposure to utilities benefiting from rising power demand and AI trends. UTES has outperformed utility peers and the S&P 500 Utilities Index, with concentrated holdings in high-growth names like VST, TLN, and CEG. While valuation and concentration risks exist, robust earnings growth and sector tailwinds justify continued optimism for UTES in growth portfolios.

Utilities ETFs like UTES, FXU and FUTY soared in July as the sector recorded its strongest streak since 2009.

UTES stands out as an actively managed utility ETF, outperforming peers by capitalizing on AI-driven electricity demand and focusing on independent power producers. The concentrated portfolio, led by skilled Reaves managers, has evolved into a growth-oriented utility ETF, but current valuations appear stretched after a recent rally. With a modest 1.6% yield, UTES isn't ideal for income investors; the Reaves Utility Income Fund (UTG) offers a 6.75% yield and similar management.

Utility stocks offered us a low-risk way to add exposure as the market surpassed hurdles.

Virtus Reaves Utilities ETF is a buy after its recent 6% pullback. UTES is actively managed, outperforming other utility ETFs, with a 45.31% price appreciation in 2024 and a five-star Morningstar rating. The fund's top holdings are less concentrated than before, with new investments like CenterPoint Energy showing strong growth potential and favorable regulatory support.

Sector ETF labels can be misleading; Technology ETFs, for example, vary significantly in holdings, risk profiles, and performance outlooks. The abundance of sector ETFs complicates investor decisions, making thorough analysis challenging and increasing the risk of missing profitable opportunities. Knowing ETF holdings is crucial to avoid poor performance; buying ETFs without analysis is akin to buying stocks without due diligence.

AI-driven energy demands have boosted utility stocks, but DeepSeek's efficient AI approach questions future growth projections, impacting the Virtus Reaves Utilities ETF (UTES). UTES saw significant gains in 2024, led by top holdings like Constellation Energy and Vistra, but current high valuations may not be sustainable if projections change. Environmental and regulatory challenges complicate utility expansions, making it difficult for UTES to find alternative growth opportunities within its top holdings.

Growth is good. In another banner year for the stock market, large-cap growth funds gained 30% in 2024, with the Magnificent Seven powering the upside.