Active exposure is rare among sector funds, especially with respect to utilities, which is one reason why investors favor the Virtus Reaves Utilities ETF (UTES ).
According to Morningstar, despite being actively managed, the fund has an expense ratio of 49 basis points, maintaining a sizeable cost advantage over competitors.
The managers behind UTES use fundamental, growth, and risk-based metrics looking to outperform the broader sector from a total return perspective. Examples of the metrics include capital structure, historical earnings growth, and share price volatility, according to ETF Database.
This strategy targets smaller plays than its peers’ average in the Utilities Morningstar Category. UTES, comprising 22 holdings, also offers more concentrated exposure to utility stocks than its peers. 64.57% of the fund’s assets are in its top 10 holdings, as of March 22.
The fund’s top holdings include NextEra Energy (NEE, 18.47%), Entergy Corporation (ETR, 5.90%), Exelon Corporation (EXC, 5.82%), Atmos Energy Corporation (ATO, 5.68%), and NiSource Inc (NI, 5.19%), as of March 22.
The fund has returned 7.30% over a one-month period and 19.73% over a one-year period. The fund has delivered non-annualized returns of 34.56% over a three-year period, according to ETF Database.
Over the past three-year period, UTES beat the category index, the S&P 1500 Utilities Index, by an annualized 57 basis points and outperformed its average peer by 1.8 percentage points, according to Morningstar. On a five-year basis, UTES led the index by an annualized 73 basis points.
The risk-adjusted performance only continues to make a case for this fund. According to Morningstar, the share class had a higher Sharpe ratio than the index over the trailing five-year period.
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