"The strongest tailwinds we’ve seen in decades": The shock sector that's up 10% this year already

In my short time at Livewire, I’ve learned what the popular opinions are on what’s exciting and what’s boring, and apparently, utilities fall into the latter bucket. 

Personally, I think it’s an unfair assessment because I really, really like it when things around me work properly, and really, really dislike it when they don’t. 

You know the poem about Jemima, the little girl with the curl, who was good when things were very, very good and when things were bad, she was horrid? 

I think most of us are all Jemimas at the end of the day, especially when we are suddenly faced with an inconvenience or disruption in the cogs of our daily lives. 

So, boring or not, the sector’s near 10% year-to-date return demands a closer look. The companies that make up the index are also some of the most reliable dividend payers in the market, thanks to their stable cash flows. 

We asked Jan de Vos, GLI & Real Assets Portfolio Manager at Resolution Capital, to share his insights on the sector.

What is the major appeal of utility companies? 

The utilities we invest in are regulated utilities which offer a rare blend of stability and resilience that’s underappreciated by many investors. Their core services are providing customers with electricity, water, and gas. These monopoly assets are essential, meaning demand remains steady even during economic downturns. This translates into predictable cash flows and reliable, growing dividends. 

The attraction of regulated utilities is that they operate under regulatory frameworks that provide a fair return on capital in addition to having inflation-linked pricing, providing a natural hedge in rising rate environments.

Many utilities, particularly in the U.S., are experiencing some of the strongest industry tailwinds we’ve seen in decades, with the large increase in the demand for power. In short, utilities combine defensive strength with future growth opportunities, making them a compelling backbone for any portfolio.

The sector is up ~10% year-to-date, which, for a defensive sector, is compelling performance. What has been driving the move?

The Australian utilities sector nowadays consists essentially of just three companies after two large, regulated utilities were taken private in recent years. Of the remaining companies, Origin and AGL are unregulated and exposed to competitive electricity markets, which makes their earnings less predictable, which is not ideal for those seeking stability. These companies don’t meet our definition of infrastructure, and as such, we don’t actively cover them.

This leaves APA Group (ASX: APA), a gas pipeline operator with steady cash flows, which is included in the Australian "utilities" sector. APA’s share price has benefited this year from plans to expand its east coast network. While the company offers reliability, we think growth prospects are stronger overseas, especially in the U.S., where returns on new investment are more attractive.

What are 2-3 factors that will drive growth and opportunity in the sector?

Many utilities are facing a once-in-a-generation growth opportunity. First, ageing infrastructure needs significant upgrades to improve resilience and reliability.

Second, the global push for decarbonisation is driving massive investment in transmission networks to connect renewable energy sources. Unlike fossil fuels, renewables are generated locally, improving energy security. This is an important consideration for many governments, particularly in Europe.

Thirdly, electricity demand is surging for the first time in decades. Electrification, onshoring of manufacturing, and the rapid rise of data centres fuelled by AI are reshaping the energy landscape. These structural trends create a compelling long-term growth story for utilities globally.

What are the key risks when investing in utilities?

While utilities offer relatively predictable, regulated returns, there are key risks to consider. Affordability is critical, as regulators resist sharp bill increases. The best operators manage rising demand efficiently, limiting price growth to inflation or less. This helps maintain customer trust and regulatory support.

Inflation and interest rates also matter. Utilities can often pass through inflation, offering some protection, but higher real rates can pressure valuations.

Finally, climate change poses physical risks to infrastructure. While cost recovery mechanisms usually exist, extreme weather, such as wildfires, can disrupt operations and delay recovery. Prudent risk management and portfolio diversification are essential to navigate these challenges.

Which utilities stocks stand out right now? 

In our portfolio, which can be accessed on the ASX via the Resolution Capital Global Listed Infrastructure Fund (ASX: RIIF), we have exposure to the following utilities, which we are excited about.

Entergy Corp (NYSE: ETR), an electric utility based in and around the US Gulf Coast. The company is very well placed to benefit from the industrial and data centre growth in the region. It is providing a “one-stop shop” solution for power-hungry industrial and AI data centre customers. The company will be supplying power to several hyperscalers, including a megadeal with Meta. This all translates into an opportunity to invest $40bn in its electric infrastructure in the coming years, resulting in a sector-leading earnings growth outlook of low double-digits.

Severn Trent (LON: SVT) is one of the best-run water utilities in the U.K., in our opinion. This company delivers clean water and wastewater services to over eight million customers. The business is investing heavily to improve its network, reduce leaks and protect the health of the UK’s rivers. With a strong record of meeting regulatory goals and keeping customer bills among the lowest in the sector, Severn Trent stands out for its steady, inflation-linked earnings and reliable dividends. 

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Resolution Capital Global Listed Infrastructure Fund - Active ETF (RIIF)

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