Pharus Sicav Best Regulated Companies, the "diesel fund" ready to start again

The Pharus Sicav Best Regulated Companies sub-fund, given its special features, will in the correct time horizon recover the price drawdown seen in recent months due to the health crisis, as the picture of recorded and expected profits puts the utilities sector in pole position for the restart.

The health crisis that has also infected the financial markets is not yet definitely behind us, but there are encouraging signs of recovery and so we feel it is our duty to provide an update on the Pharus Sicav Best Regulated Companies sub-fund.

The fund defended itself very well during the most acute phase of the correction, outperforming global equities by around 10% and other infrastructure investment funds by around 20% (which, by the way, have remained approximately 25% negative since the beginning of the year). The graph below shows that the fund continues to outperform both global equities and a global infrastructure ETF.

However, the recovery recorded by global shareholders is currently only partial. The explanation could be due to the bond proxy nature of the product, confirmed by this chart comparing the sub-fund with the world of bonds: the Pharus Sicav Best Regulated Companies fund fell as an Investment Grade or High Yield bond until the emergency intervention by the Fed, which raised the former and, more slowly, the latter.

It is necessary to bear in mind the special feature of these securities so unique in the investment universe: decorrelation with respect to economic cycles, which in this case translates into decorrelation with respect to equity indices. But, in the long term, intrinsic value is always expressed again. At current discounted prices, it would be a shame not to take advantage of the highly favourable investment situation, as the value has remained unchanged on solid fundamentals.

The last US profit season supports this thesis: the utilities sector, which includes the regulated utilities, is one of the very few sectors during this economic crisis to see a growth in profits (of about 5-6%). Moreover, it is practically the only sector that is confirming a growth in profits and dividends also for the next few quarters, making the impact of Covid-19 almost non-existent. These are very specific signs from the perspective of business quality.

In fact, there are securities in the portfolio that are currently traded at 20% of their mid-February maximum prices, highlighting the distortion between reported and expected profit growth and the price, which is expected to be reabsorbed in the long term.

The latter is the key concept for those who want to invest in the sector: its performance and return must be evaluated over a minimum period of 5 years, with no attention being paid to the slow reaction of the fund and the consequent lateral movements typical of a bond, but rather to the double-digit result to be obtained over time.

In summary, prices will certainly go up, not least in consideration of the very interesting level of RAB premium/discount, with some securities being traded at a discount on RAB even on the days with highest sales volumes.

In a scenario of strong expansive interventions by the main Central Banks, where rates will remain negative for a long time and Equity Risk Premium funds are very interesting, regulated utilities stocks are one of the best compromises, in terms of risk/expected return ratio, that an investor can find in the equity field.

Being listed shares, in the short term they may suffer from the general "bellyaches" in the market as a whole which even cast doubt on their value, but with patience in the long term they remain a guarantee of return.