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20 years on, we consider what lessons have been learned
These durable trends, especially the shift toward renewables, have put downward pressure on fuel, operating, and maintenance, costs enabling utilities to increase rates of return without driving up customer bills. And while the gap in earnings growth has narrowed considerably already, we believe aggregate earnings growth for the S&P Utilities Index could exceed that of the S&P 500 Index within the next few years.
Among those sectors traditionally considered more defensive – i.e. those that, historically, have been relatively less aligned to the economic cycle – the utilities sector is the only one, in our view, that is not threatened by significant secular risks, such as the emergence of new competitive forces or technological innovation that would undermine topline growth and profit margins. While telecoms, consumer staples, and parts of health care, all face secular challenges of one form or another, utilities are, in fact, benefiting from industry-disruptive change.
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