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The Source STOXX Europe 600 Optimised Utilities ETF provides equity exposure to European domiciled utility companies. As it pertains to demand, utilities offer a direct investment into a regional economy’s growth, as it is literally impossible to export these essential services. However, the exposure gained through this ETF is not strictly limited to European demand but is driven by global economic forces. Companies like E.ON, ENEL and GDF Suez--the top three index constituents--are engaged in utility projects around the world.
The index’s constituents consist of both regulated utility providers and merchant power generators. Regulated utilities have historically provided stable dividends and returns. Merchant power generators, on the other hand, tend to have a wider variance of returns due to commodity price fluctuations. At the time of this writing, the non-optimised version of the reference index has exhibited a high level of correlation to the MSCI World (82%) and the STOXX Europe 600 (88%) indices over the past ten years.
Investors are often attracted to the utilities sector because it has historically produced strong, stable cash flows and dividends. As of this writing, the reference index has a current dividend yield equal to 6.3% compared to the current dividend yield of 2% for the MSCI World index. Given its narrow sector focus, this ETF is best utilised as a tactical tool within a diversified portfolio.
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