SOJF - Miller-Howard Utilities Plus Q4 2024 Commentary

2025-02-26 09:05:00 ET

Summary

• Utilities recorded their strongest calendar year performance since 2019, despite losing ground in the fourth quarter due to interest rate headwinds and inflation concerns.
• Utilities' earnings are easier to project with lower forecasting error compared to the S&P 500, making them attractive for risk-adjusted returns.
• Dividend increases and strategic adjustments in holdings, such as trimming Vistra Corp. and adding to PG&E Corp., highlight our portfolio management approach.
• Top performers like Vistra and Entergy benefited from data center and AI trends, while renewable developers faced pressure from potential Inflation Reduction Act modifications.

After four consecutive quarters of positive performance and their best quarter in over 20 years, utilities stalled late in the fourth quarter. Interest rate headwinds resurfaced as the yield on the 10-year Treasury ( US10Y ) increased roughly 80 basis points in the quarter. While the Federal Reserve continued to cut rates, in December, the Fed indicated that it expected fewer rate cuts in 2025 amid higher-than-anticipated inflation. Utilities outperformed the broad market through the first three quarters of 2024 before losing ground through year end. Despite the disappointing conclusion, utilities recorded their strongest calendar year performance since 2019....

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