As Washington lawmakers strive to make the Biden administration’s $ 579 billion infrastructure spending framework a reality, the worst performing sector of the year could see a rebound, Jay Rhame said, CEO of Reaves Asset Management, at CNBC’s “ETF Edge” this week.
Two major tailwinds could propel utilities higher, said Rhame, co-managed by the Virtus Reaves Utilities ETF (UTES).
The first concerns potential spending in areas such as electric transmission, network resilience and electric vehicle charging infrastructure, which is “incremental to growth,” Rhame said in the interview on Wednesday.
The second is the administration’s focus on clean energy, the CEO said. Biden has previously expressed goals of achieving carbon-free power generation by 2035 and zero net greenhouse gas emissions by 2050.
“This is really the big advantage for the industry,” said Rhame. “There was talk of extending tax credits for wind and solar power, or even creating a new tax credit for nuclear production for existing nuclear installations, then an independent tax credit for storage. batteries. “
These tax credits could continue to reduce costs to the point where building new, sustainable energy infrastructure is cheaper than maintaining fossil fuel power plants, he said.
“It creates an interesting dynamic for utilities to actually transition the grid to more renewables and do it cost-effectively, and this should be a great growth opportunity for the sector,” said Rhame.
“They’ve really underperformed recently, and I think a lot of that has been focused on interest rates. [and] higher inflation expectations, but once you get past that and look to the long term, there seems to be a nice catching-up business opportunity out there, ”he said.
While federal infrastructure spending typically does not pass directly to publicly traded companies, there are always ways to play the space, said Dave Nadig, chief investment officer and research director at ETF Trends and ETF Database, in the same interview “ETF Edge”. .
It identified two ETFs: the Global X US Infrastructure Development ETF (PAVE) and one of its internationally oriented counterparts, the FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA).
“I actually kind of prefer the international game here. I think a lot of big companies that we could involve in the development of this type of complete infrastructure construction in the world are really in this international fund, ”Nadig said. “So I think NFRA is the most interesting long-term game. If you’re looking to grab that pop of the headlines, PAVE is probably the way to go. “
Yet the catalysts for these funds “are largely based on sentiment rather than direct A to B income,” he warned.
PAVE is up almost 22% so far this year. The NFRA gained just over 8.5%.
On utilities, Nadig said the group “is generally very under siege and has some great opportunities, but you really have to choose there.”