The Cohen & Steers Infrastructure Fund (UTF) has done well this year, helped by the strong performance of infrastructure assets and hopes of interest rate cuts.
The fund, which tracks the biggest infrastructure and utility companies, has risen by 18% this year, a notable performance since it does not have exposure to artificial intelligence companies like NVIDIA, Palantir, and Microsoft.
UTF is a beloved fund for its strong dividend yield of over 7.7%, which is higher than other popular funds like the Schwab US Dividend Equity (SCHD) and the Vanguard High Dividend Fund (VYM).
Infrastructure investments
The Cohen & Steers infrastructure closed-end fund is doing well as demand for infrastructure continue rising. Analysts expect that demand for large infrastructure projects will continue growing.
For example, the United States passed the Bipartisan Infrastructure Deal, which allocated $1 trillion in spending.
Other countries like India, China, and Europe are also investing substantial sums of money in this industry.
These investments are happening as countries transition their energy sources and upgrade their aging infrastructure.
As a result, the industry has become highly popular among private equity and stock market investors.
This demand explains why the Cohen & Steers infrastructure fund is thriving. This is a top fund with over $3.3 billion in assets and 252 companies in its portfolio. It achieves higher leverage of about 28%.
A closer look at the UTF fund shows that most of its companies are in the electricity generation and distribution industries. These firms represent about 35% of its portfolio,
The other big names in the fund are in the midstream energy partners. These are companies that gather, transport, and process energy commodities like crude oil and natural gas. They are different than other companies in that they don’t pay corporate taxes. Instead, these taxes are passed through to consumers.
Other companies in the portfolio are in gas distribution, telephone towers, airports, toll roads, and marine ports.
Nine of its portfolio companies are worth over $100 million. These companies include American Tower, Southern Company, NextEra Energy, TC Energy, Duke Energy, NiSource, PPL, National Grid, and Crown Castle.
American Tower is one of the biggest REIT in the US. It is a company that provides tower solutions to companies like AT&T, T-Mobile, and Vodafone.
NextEra Energy, on the other hand, is the biggest utility company in the world, with millions of customers, mostly in Florida. Duke Energy and Southern. National Grid is a British company that provides utility services in the UK and in New York.
Other companies in the UTF Fund are the likes of Power Grid, Energy Transfer, Cheniere Energy, and Norfork Southern.
Read more: This infrastructure Fund (UTF) yields 8%: Here’s why I’m not buying
Interest rate cuts as a catalyst
A key catalyst for the Cohen & Steers Fund is interest rates, which have started coming down in the United States and other countries.
The Fed has cut rates by 0.50%, and analysts expect it to deliver more cuts in the coming meetings after the US published a weak jobs report. The economy created just 12,000 jobs in October, much lower than the expected 100k.
Therefore, the Fed will likely cut rates by 0.25% in its meeting on Wednesday next week. It will also hint of more cuts in the coming meetings.
Other central banks like the ECB, Bank of England, and Swiss National Bank are also expected to continue cutting interest rates.
Companies in the infrastructure industry do well when interest rates are falling because of the amount of capital they spend.
The other catalyst for infrastructure companies is the ongoing investments in data centers, which has led to substantial energy demand.
The risk, however, is that some of these companies have become highly overvalued, pointing to a reversal. For example, American Tower has a price-to-earnings ratio of 38, while NextEra Energy has a multiple of 22.
Read more: Infrastructure is booming: Is the Cohen & Steers (UTF) ETF a buy?
UTF analysis
UTF chart by TradingView
The weekly chart shows that the UTF fund peaked at $26.25 a few weeks ago and has now pulled back to $25. It remains slightly higher than the key support at $24.16, its highest swing in April 2022. That price was also the upper side of the cup and handle or the double-top patterns.
The two lines of the MACD indicators have made a bearish crossover and are pointing downwards. The same is true with the Relative Strength Index (RSI), which has moved to 60.
Therefore, the stock will likely drop and retest the key support at $24.15. This is known as a break and retest pattern and is one of the most popular continuation signs.
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