RSPU: March Utility Industry Dashboard | Private Equity Weekly

This monthly article series presents a dashboard containing aggregated metrics for the utility industry.This is also the case for the Utilities Select Sector SPDR® Fund ETF (XLU) and Invesco S&P 500® Equality Index Weighted Utilities ETFs (NYSE:RSPU), whose holdings are used to calculate these indicators.

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The next two paragraphs in italics describe the dashboard approach. They are necessary for new readers to understand these indicators. If you’re used to the series or short on time, you can skip them and look at the charts.

Basic indicators

I calculated the median of five basic ratios for each industry: Return on Earnings (“EY”), Return on Sales (“SY”), Return on Free Cash Flow (“FY”), Return on Equity (“ROE” ” ), gross profit margin (“General Motors”). The reference range includes large companies in the US stock market. These five basic indicators are calculated based on the past 12 months. For all of them, the higher the better.Yi, west and FY is the inverse median of price/earnings, price/sales, and price/free cash flow. They are more suitable for statistical study than P/E ratios, which are unavailable or unavailable when “something” is close to zero or negative (for example, a company with negative earnings). I also looked at two momentum indicators for each group: median monthly return (RetM) and median annual return (RetY).

I prefer the median to the mean because the median divides a group into a good half and a bad half. The capitalization-weighted average is affected by extreme values ​​and the largest companies. My indicators are designed for stock picking, not index investing.

Value and Quality Score

I calculate historical benchmarks for all metrics. They are recorded as EYh, SYh, FYh, ROEh, and GMh respectively, and are calculated as the average value during the 11-year review period. For example, the EYh value for Hardware in the table below is the 11-year average of the median earnings yield of hardware companies.

Value Score (“VS”) is defined as the average percentage difference between Two valuation ratios ((EY, SY)) and their baselines (EYh, SYh). Fiscal year reporting is for consistency with other departmental dashboards but is ignored in utilitiesofcore to avoid some inconsistencies. Likewise, the Quality Score (“QS”) is the average difference between two quality ratios (ROE, GM) and its baseline (ROEh, GMh).

Scores are in percentage points. VS can be interpreted as the percentage of underestimation or overestimation relative to the baseline (positive values ​​are good, negative values ​​are bad). This interpretation must be viewed with caution: the baseline is an arbitrary reference, not a hypothetical fair value.This formula assumes two Valuation ratio are equally important.

Current data

The table below shows the metrics and scores as of writing. Columns represent all the data named and defined above.

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Value and Quality Chart

The next chart plots value and quality scores by industry. The higher the better.

Evolution since last time medium sizeAnse

Water companies’ value scores improved.

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The next chart plots median returns by subsector.

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Gas and water companies are undervalued by 6% to 7% compared to their 11-year averages, with quality scores close to historical baselines. Power and multi-utilities are valued slightly below the baseline but have higher quality than the baseline.

RSPU Overview

The Invesco S&P 500 Equal Weight Utilities ETF began investment operations on November 1, 2006 and tracks the S&P 500 Equal Weight Utilities Plus Index. The fund holds 32 stocks and has an expense ratio of 0.40%, while XLU’s expenses are just 0.09%.

After each rebalancing, all positions have the same weight, but they may change based on price action. The table below lists the current top 10 holdings, which together account for 34% of the asset value. These are the constituents with higher price returns since the last rebalance. The risk associated with individual companies is lower than that of the capital-weighted fund XLU, where the top 10 holdings account for 59.4% of assets and top-ranked NextEra Energy accounts for 13.2% of assets.

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RSPU and XLU have similar total valuation ratios, as shown in the table below.

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Source: Fidelity.

Since inception, RSPU’s total return has been slightly higher than XLU’s. However, the difference in annualized returns is not significant (21 basis points).

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Data comes from Portfolio123.

It has been more resilient than capitalization-weighted ETFs over the past 12 months:

All in all, the Invesco S&P 500® Equal Weight Utilities ETF is a great tool for investors seeking exposure to utilities without the concentration of a capital-weighted fund. Nonetheless, XLU has much higher trading volumes and is better suited for short-term trading and tactical allocations.

Dashboard list

I use the first table to calculate value and quality scores. It can also be used in the stock picking process to check where a company stands among its peers. For example, an EY column tells us that natural gas utilities with a yield above 0.0633 (or a P/E ratio below 15.80) are in a better position in their industry by this metric. Quantitative Risk & Value subscribers are sent a monthly dashboard listing the most profitable companies that simultaneously lead their peers across three valuation metrics. The stocks below are part of a list sent to subscribers a few weeks ago.

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This is a rotational model with a statistical bias of long-term excess returns, rather than an analysis of each stock.