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Quarter-End Insights

Clean Energy Provides Growth in Utilities Sector

We expect the incoming Biden administration to speed up investment in renewable energy.

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Like many of us, utilities will be happy to say goodbye to 2020. The sector lost all of its early-year momentum when the pandemic hit and has yet to recover, still down about 10% from its February peak. Utilities close 2020 as the second-worst-performing sector behind energy and enter 2021 with a much more attractive investment proposition.

Utilities reached a record-high 22% premium to our fair value estimates in early 2020, suggesting investment dangers were ahead. We didn’t anticipate such a quick correction in March, but we’re not surprised by the weak second-half rebound. Utilities now enter 2021 fairly valued. The sector’s 3.3% average dividend yield remains exceptionally attractive relative to ultralow interest rates.

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Travis Miller does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.