The utilities space has been somewhat maligned in recent times, both on a UK – particularly pre-election as fears over Labour’s proposed bill freeze took hold – and also a wider European perspective.
However, while stringent regulations are usually a cause for concern, Clarke, manager of the Fidelity European Dividend Fund, believes that they could provide a silver lining for investors in this unloved sector.
“We own a lot of utilities companies,” he said. “Utilities are attractive because the business will always be with us – there will always be a demand for water, electricity, gas, and so on.
Also, there is a heavily-regulated process because these companies are natural monopolies, so there is considerable focus on balance sheets and returns. Since the financial crisis companies have been run for cash rather than expansion, therefore balance sheets are healthy and there is less debt.”
Clarke’s optimism is buoyed further by the prospect of the ongoing eurozone recovery providing a boon for the wider European dividends picture.
He said: “The eurozone investment environment – outside the Greece situation – is slowly improving, with a big boost coming from the lower oil price. QE keeps interest rates low and has brought the debt crisis under control, and it has removed doubt over the commitment of countries to eurozone. I am positive about the future of returns.”
This conviction translates to the European Dividend Fund, with Clarke dedicating a significant portfolio weighting to the utilities sector, which he has topped up in the last month from 8.57% to 12%.
“We own National Grid, because the UK regulatory environment is favourable for dividend,” he said. “We also like renewable energy, such as wind-farming.
“Germany is shifting from fossil fuel to nuclear power, so we do not own any German utilities.”
