Josh Wein, Hennessy Gas Utility Fund, joins The Final Round to discuss why he’s bullish on the market and why the utilities sector remains the most attractive for long-term investors.
Video Transcript
SEANA SMITH: All right, well, let’s get a better picture, a better look, I guess, at the broader market action today, with stocks rallying. We had the Dow, the NASDAQ, and the S&P both closing at its highest level in about a month. For more on this, we want to bring in Josh Wein. He’s a portfolio manager at The Hennessy Gas Utility Fund. Josh, we’ll get into some of your utility picks in just a minute, but first I just want to get your reaction to some of the market volatility that we’ve seen over the last couple of weeks, and what you’re expecting here going forward for the rest of the fourth quarter.
JOSH WEIN: Yeah, it’s been an interesting last few days and last couple of weeks. And it seems like the tone has obviously changed and we’re talking about stimulus and we’re increasingly talking about, whether it is or not, I think the market is treating a Biden win as a foregone conclusion. So I think that today I was struck by, there was a move in a lot of the construction and infrastructure names. So this idea that, oh well, Biden is going to be in the Oval Office and that will be one of his first initiatives, is to get people back to work.
So it seems like the tone has changed. And a lot of this is being built into expectations for the market. Looking at betting markets, which I think is really interesting, believe ’em or not, Biden is almost 70% now. So it’s interesting. I think that changes the tone, the lack of a contested election, all that. It’s apparently constructive, is looking at the market.
SEANA SMITH: And Jared, josh excuse me. When you’re taking a look at this, I know that one of your, one of the areas that you focus on is utilities. It’s obviously in your defensive play. Was a big out-performer when we saw the market selloff yesterday. But why do you think that now is the time to buy some of those names within that sector?
JOSH WEIN: Sure, yeah, absolutely. I think that pre-pandemic, It’s interesting to note that utilities traded at a premium multiple to the S&P. And so with what’s been going on the last seven months, rates have come in a lot and they’re going to stay low for the foreseeable future. And equities have gotten a bid. So the S&P, we were doing some work on this the other day, the S&P trades, I think it’s 55% above its long-term average on a PE basis. And utilities have barely budged. I think they’re about 10% above average. And the holdings in our gas utility fund, they’re a little bit below their average PE.
So I think there’s certainly an opportunistic flavor to investing in utilities right now. But I think that what has been the case and what continues, is very strong predictable earnings growth. Kind of 5% to 8%, give or take, and a commensurate increase in dividend. So I think it’s a yield story, it’s an earnings growth story. It’s a yes, defensive, but I think that valuation makes it a little bit more exciting than would otherwise be the case.
RICK NEWMAN: Hey, Josh, Rick Newman here. You’re bullish on some energy names as well. You just kind of refer to that. Is that because they’re just beaten down almost to death, they seem like they can only rebound? Or are you optimistic about the sector?
JOSH WEIN: Well, yeah, it’s funny you say that, because I was looking at some of the names, and it kind of struck me that things that have the word energy in them certainly get painted with the same brush as an Exxon Mobil or something that’s classically E&P But the holdings in the gas utility fund are squarely focused on the distribution and transmission of natural gas.
So one of the names in the portfolio that we can talk about a little bit is WEC Energy. And perhaps it’s a misnomer. I think that you see a name, any name that has the word energy, implies that there’s commodity price risk, there’s drilling, there’s production, there’s you know, everything that scares people and when crude oil and natural gas prices move in crazy directions. So yeah, I think that the group gets cast in the same light as a lot of the more volatile commodity price-driven names.
ANDY SERWER: There’s some craziness in that sector. Just today, Jared Blikre sending a note around that Chevron has just exceeded XLM’s market cap for the first time since never, right? I mean, right? Going back to Standard Oil. I mean, some Rockefellers are rolling over in their grave. So I want to ask you though, Josh, about this distinction you made between Wall Street and Main Street, and saying that Wall Street’s up here and Main Street’s down there. And this obviously, people talking about this a lot over the past several months. But I mean, is that really a sustainable set of circumstances?
JOSH WEIN: Well, that’s a great point, because I think it’s not appreciated enough by maybe people that aren’t working actively in business or working in the financial media. I think that it’s a market cap-driven construct. So Google, Microsoft, those names, if they’re doing well, then it’s probably all good, at least right now. And there are some very small companies, let’s say a small restaurant group or a small theater chain or whatever it might be, and they could be down an infinite amount and it won’t matter.
Unfortunately, and it’s heartless to say, it just doesn’t matter to the extent that the market is moving up or down. So I think that this disconnect between the market and Main Street, yeah, I mean, the market is not the economy. The market is five names that comprise over half the, well, the number escapes me now, the market is different than Main Street. I think we’re learning that more and more, and I have to remind myself constantly that unfortunately, when I drive down into downtown Raleigh, it just doesn’t matter what I see and what is going on in the market. They’re two different things.s
