Saving & Managing Money

3 sectors to consider investing in when the stock market is volatile – MoneySense

2. Investing in utilities

Companies that generate power, operate electricity transmission and distribution systems, manage water supplies, or provide telecommunications may not be as sexy as hot tech stocks, but they may appeal to Canadian investors seeking solid yields and stable prices over time.

“You won’t find runaway growth in a lot of these companies,” says Harvest ETFs portfolio manager Mike Dragosits. “The trade-off is you get a steady growing profile over time. You won’t be in the hot sector-of-the-month that everybody is talking about. But the companies will chug along and generate cash flows for investors.”

So, why do many investors overlook utilities? Complexity has a lot to do with it. Utilities operate in highly regulated business sectors. For retail investors, poring over regulatory documents and understanding regulatory regimes—and regulatory risk—in the jurisdictions where companies operate is daunting. And there’s no exciting growth story at the end to reward those who power through the paperwork. 

Still, utility companies benefit from several attributes. They provide services—energy, electricity, water, communications—that everybody needs and consumes more or less daily. Demand is relatively consistent, offering protection through market cycles. As large, capital-intensive businesses, they also often hold monopoly-like positions in their markets. Potential competitors face massive barriers to entry, enhancing the ability of utility companies to maintain prices (although that pricing power is often subject to regulation).

The challenge, though, is managing risk. Disasters, such as 2022’s wildfires in California, can destroy infrastructure. The impacts of climate change are equally concerning, as is the potential for governments to change regulations in ways that impact corporate earnings. Market risk is another factor, although utilities tend to weather downturns better than high-growth sectors.

Dragosits says Harvest ETFs addresses sector risk in its Harvest Equal Weight Global Utilities Income ETF (HUTL) with diversification in subsectors and across geographies. “You’re getting not only Canadian exposure, but also U.S. and developed western market exposure,” he says.

The ETF holds a portfolio of 30 large-cap global utility firms that generate above-average yields, with equal weighting across equities to reduce single-stock risk. Like HHL, it also employs a covered-call strategy to enhance income potential.

3. Investing in brand leaders

Warren Buffett, one of the world’s most successful investors, has been photographed drinking Coca-Cola several times. The soft drink is emblematic of one of Buffett’s core investing tenets: Buy strong companies that make products you know and understand. His celebrated Berkshire Hathaway Inc. portfolio is strongly weighted toward famous household brands including—you guessed it—Coca-Cola.

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