RYU: Utilities Dashboard For February

Daniel Balakov

This monthly article bid shows a dashboard pinch aggregate manufacture metrics successful utilities. It is besides a top-down study of assemblage exchange-traded costs ("ETFs") for illustration nan Utilities Select Sector SPDR ETF (XLU) and nan Invesco S&P 500 Equal Weight Utilities ETF (NYSEARCA:RYU), whose holdings are utilized to cipher these metrics.

Shortcut

The adjacent 2 paragraphs successful italic picture nan dashboard methodology. They are basal for caller readers to understand nan metrics. If you are utilized to this bid aliases if you are short of time, you tin skip them and spell to nan charts.

Base Metrics

I cipher nan median worth of 5 basal ratios for each industry: Earnings Yield ("EY"), Sales Yield ("SY"), Free Cash Flow Yield ("FY"), Return connected Equity ("ROE"), Gross Margin ("GM"). The reference beingness includes ample companies successful nan U.S. banal market. The 5 guidelines metrics are calculated connected trailing 12 months. For each of them, higher is better. EY, SY and FY are medians of nan inverse of Price/Earnings, Price/Sales and Price/Free Cash Flow. They are amended for statistical studies than price-to-something ratios, which are unusable aliases non disposable erstwhile nan "something" is adjacent to zero aliases antagonistic (for example, companies pinch antagonistic earnings). I besides look astatine 2 momentum metrics for each group: nan median monthly return (RetM) and nan median yearly return (RetY).

I for illustration medians to averages because a median splits a group successful a bully half and a bad half. A capital-weighted mean is skewed by utmost values and nan largest companies. My metrics are designed for stock-picking alternatively than scale investing.

Value and Quality Scores

I cipher humanities baselines for each metrics. They are noted respectively EYh, SYh, FYh, ROEh, GMh, and they are calculated arsenic nan averages connected a look-back play of 11 years. For example, nan worth of EYh for hardware successful nan array beneath is nan 11-year mean of nan median Earnings Yield successful hardware companies.

The Value Score ("VS") is defined arsenic nan mean quality successful % between two valuation ratios (EY, SY) and their baselines (EYh, SYh). FY is reported for consistency pinch different assemblage dashboards, but it is ignored successful utilities' score to debar immoderate inconsistencies. The aforesaid way, nan Quality Score ("QS") is nan mean quality betwixt nan 2 value ratios (ROE, GM) and their baselines (ROEh, GMh).

The scores are successful percent points. VS whitethorn beryllium interpreted arsenic nan percent of undervaluation aliases overvaluation comparative to nan baseline (positive is good, antagonistic is bad). This mentation must beryllium taken pinch caution: nan baseline is an arbitrary reference, not a expected adjacent value. The look assumes that the two valuation ratios are of adjacent importance.

Current Data

The adjacent array shows nan metrics and scores arsenic of past week's closing. Columns guidelines for each nan information named and defined above.

Value and Quality Chart

The adjacent floor plan land nan Value and Quality Scores by industry. Higher is better.

Value and Quality successful utilities (Chart: author; data: Portfolio123)

Evolution Since Last Month

Value scores person improved owed to a short-term downtrend successful utilities banal prices. Quality has improved successful state and is unchanged elsewhere.

Variations successful worth and value (Chart: author; data: Portfolio123)

Momentum

The adjacent floor plan land median returns by subsector.

Momentum successful utilities (Chart: author; data: Portfolio123)

Interpretation

Gas utilities are adjacent to 11-year averages successful valuation and value metrics. It is nan astir charismatic manufacture successful nan assemblage correct now. Electricity and h2o are besides adjacent to nan humanities baseline successful quality, but they are overvalued by astir 14% and 29%, based connected nan aforesaid methodology.

Fast Facts connected RYU

The Invesco S&P 500 Equal Weight Utilities ETF (RYU) has been search nan S&P 500 Equal Weight Utilities Plus Index since 11/01/2006. It has a 12-month distribution output of 2.41%. The disbursal ratio is 0.40%, while XLU charges only 0.10%.

All constituents person nan aforesaid weight aft each rebalancing, but they whitethorn drift pinch value action. The adjacent array lists nan apical 10 holdings, pinch an aggregate weight of 34.5%. These are nan stocks pinch nan champion momentum since nan past rebalancing. Risks related to individual companies are little than successful XLU, wherever nan apical 10 holdings measurement 59% of nan fund, and nan apical name, NextEra Energy (NEE), represents astir 15% of plus value.

RYU is simply a spot cheaper than XLU regarding nan accustomed valuation ratios:

Data: Fidelity.

Despite their quality successful weighting, nan capacity and consequence metrics of RYU and XLU since inception are highly adjacent (see array below).

Data calculated pinch Portfolio123.

In summary, RYU is absorbing for investors looking for vulnerability to utilities without nan attraction successful apical holdings of superior weighted funds. However, XLU is simply a amended instrumentality for trading and tactical allocation strategies, acknowledgment to higher trading volumes.

Dashboard List

I usage nan first array to cipher worth and value scores. It whitethorn besides beryllium utilized successful a stock-picking process to cheque really companies guidelines among their peers. For example, nan EY file tells america that an energy institution pinch an Earnings Yield supra 0.0475 (or price/earnings beneath 21.05) is successful nan amended half of nan manufacture regarding this metric. A Dashboard List is sent each period to Quantitative Risk & Value subscribers pinch nan astir profitable companies opinionated successful nan amended half among their peers regarding nan 3 valuation metrics astatine nan aforesaid time. The database beneath was sent to subscribers respective weeks agone based connected information disposable astatine this time.

It is simply a rotating database pinch a statistical bias toward excess returns connected nan long-term, not nan consequence of an study of each stock.

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