The few smart-beta funds out there are also showing returns similar to the passives, but with higher expense ratios. The John Hancock Multi-Factor Utilities ETF (JHMU) is up 13.97 percent, with an expense ratio of 50 basis points. The PowerShares DWA Utilities Momentum Portfolio (PUI) is up 14.85 percent, and its expense ratio is 60 basis points
The sole active fund in the mix is also the best U.S. performer, the Reaves Utilities ETF (UTES), up 17.85 percent. Its expense ratio is on the high side at 0.95 percent.
Two funds that take the definition of utilities a bit loosely are suffering from that decision. Both the Guggenheim S&P Equal Weight Utilities (RYU) and First Trust Utilities AlphaDEX Fund (FXU), a multi-factor fund, have decent weightings to telecommunications at 12 percent and 16.7 percent, respectively.
RYU’s year-to-date return of 13.1 percent outpaces the S&P utilities sector index return of 10.6 percent, but it’s lagging the biggest of the passive funds by 1 to 1.5 percentage points, while FXU is showing the poorest performance of the entire group of 22 funds with its gain of 6.15 percent. It’s also the costliest with an expense ratio of 62 basis points.
Regardless of the impact the Fed might have on utilities, Muir says a return to more normal weather may limit revenue growth, as he notes several years of above normal temperatures meant higher summer air conditioning electric demand.
Further, Muir notes that price-to-earnings ratios for utilities are at relatively high levels given the current expectations for real gross domestic product growth.
“CFRA believes it is unlikely that PE ratios will remain at such high levels for an extended period of time without a positive change in GDP growth assumption,” he says.