First, they have historically had lower volatility during recessionary environments because they’re focused on critical infrastructure, such as electricity, hydro, and gas, which are necessary expenditures.
“During a recessionary environment, people don’t stop paying the things they need. Discretionary spending, such as automobiles, consumer technology, and luxury goods, have decreased spending,” he said. “Utilities tend to maintain their revenue during those periods because they provide services that are critical.”
He noted that utilities may have a pullback during economic downturns, but it’s one of the sectors that holds best during a broader economic decline.
Secondly, utilities are attractive because they pay a fairly strong yield relative to other sectors, and that’s usually in the 3% to 4% range, which he noted “helps as an offset as the market starts to cool off and you start to see growth stocks, such as technology, decline. Utilities have a steadier cash flow that can attract investors.”
Noble said Horizons had a hole in not having a utilities product in its line-up, especially when it saw there’s a bigger demand for income and there’d been a $600 million dollar inflow into utilities ETFS in Canada with the potential of billions of dollars in the U.S.
