The rise of renewable energy is transforming the utilities industry
When you think about classic defensive areas of the equity market, the utilities sector likely springs to mind – traditionally offering low volatility returns, relatively insulated from the vagaries of the economic cycle, but also little in the way of earnings growth.
However, industry dynamics are changing, to the extent that this conventional view of the utilities sector is looking increasingly outdated. In fact, we believe utilities today could provide some of the best long term, risk adjusted, return opportunities of any US equity market sector.
A new era
Historically, utility returns were driven almost entirely by dividend yields and these were, in turn, highly correlated with yields available on US Treasury and corporate bonds. For investors looking for growth, the utilities sector was not the place to be.
