The mid-month steep drop in the market stock market indexes are a sign that investors have become fearful that the ongoing trade war will become a significant drag on business results. The stock market fears have led to a flight to quality, with money pouring into government bonds, driving down interest rates.
With no resolution to the trade conflict in sight. And the added investor disappointment that a large government infrastructure plan now seems DOA, it’s time to look for some safe harbor investments.
The goal is to find conservative investments where products, revenues or services are not tied to international trade. Slowing trade expectations have also triggered a sell-off in energy prices, so that is a sector in which to lightly tread.
Utilities are one sector that is historically defensive, while producing attractive dividend yields and total returns. When the markets are doing well, utility stocks can be too boring for investors looking for action. When the market turns ugly, boring positive returns suddenly become very attractive.
I have strong personal relationships with the portfolio managers at Reaves Asset Management. Reaves has 40 years of experience in money management focused on utilities such as electric, gas, water and telecommunications companies. Since many utility companies are highly regulated at the state level of government, I prefer to recommend utility focused investment products managed by the folks at Reaves.
The Virtus Reaves Utilities ETF (UTES) is an exchange traded fund that uses active management to generate returns superior to an index tracking ETF in the sector.
The fund was launched in May 2018. The UTES shares have returned 15.2% since inception. This fund focuses on owning utility stocks with the strongest growth potential, so it is more of a total return play instead of a high-yield income investment.
The top three holdings are NextEra Energy (NEE), DTE Energy Company (DTE) and Sempra Energy (SRE).
Current yield is 1.9%.
For more income focused investors, the Reaves Utility Income Fund (UTG) is a monthly dividend closed-end fund with a current yield of 5.9%.
The dividends derive from a combination of portfolio income and realized capital gains. Dividends from UTG have never been classified as return of capital.
The fund was established in February 2004. The monthly dividend has grown over time and has never been cut.
Current top three holdings are DTE Energy Company (DTE), Sempra Energy (SRE) and Verizon Communications (VZ).
The declining interest rates associated with the current stock market volatility are a positive for real estate investment trusts (REITs) and fixed income preferred stock shares. The InfraCap REIT Preferred ETF (PFFR) gives exposure to both categories.
This actively managed ETF has a portfolio of preferred stocks exclusively from companies in the REIT sector. These preferred shares are viewed as safer than the overall wider preferred stock universe.
Currently PFFR pays quarterly dividends but plans to change to a monthly dividend schedule this summer.
The fund shares currently yield 5.8%.