Reaves Asset Management, a New Jersey-based investment company specialising in the coverage of utility and infrastructure companies, has launched its first exchange-traded fund: the actively managed Reaves Utilities ETF (UTES).

The fund provides exposure to the low-volatility utilities sector while allowing for tactical allocations.

Listed on Nasdaq, the ETF provides transparent exposure to the lower-volatility profile of the US utility sector via active stock selection.

“Utilities provide an element of stability in investment portfolios due to their defensive nature, steady earnings, dividend growth, and quarterly dividend payments”, said John Bartlett, co-portfolio manager at Reaves Asset Management. “Our active approach focuses on strong risk-adjusted total returns as we feel it’s the best way to deliver superior value to our investors over the long term.”

The ETF will invest in firms which engage in electrical distribution and transmission, gas distribution, water distribution, power production and YieldCos, as well as vertically integrated and traditional utilities. Yieldcos are a dividend growth-oriented public company, created by a parent company (e.g., SunEdison), that bundles renewable and/or conventional long-term contracted operating assets in order to generate predictable cash flows.

The fund managers utilise a bottom-up approach to security selection that encompasses both qualitative (management interviews, field research) and quantitative processes (modelling, valuations, technicals). The aim is to provide superior returns when compared to passive, broad utility sector indices by allowing the flexibility to tilt the portfolio allocations according to the managers’ outlook.

Specifically, the managers have cited the ability to shift allocations between regions in the US as a major advantage, thereby capturing differences such as better population growth rates, more desirable weather conditions, greater industrial activity, and more favourable regulation.

Furthermore, many utility companies are overly dependent on commodity prices, especially in relation to natural gas and coal. The managers can balance the total risk to the fund arising from these dependencies by making tactical adjustments to the portfolio.

As of 24 September 2015, there were 22 constituents to the fund of which the main holdings included Nextera Energy (12.3%), Dominion Resources (11.5%), Sempra Energy (7.8%), DTE Energy (7.1%) and Edison International (7.0%).

The total expense ratio of the fund is 0.95%.