Though utilities have proven to be the most resilient in the recent market downturn, some fared better than others. Which utility stocks are most resistant to down markets?
To answer this question, utility stocks were screened and sorted based on their performances over week-long downturn that lasted through August 9th, 2011.* Over the course of this week, the S&P500 index dropped over 13.3% while the mean drop for a broader sample of 4541 equities was 10.1%, providing an opportunity to observe sector differences during extreme market drops. **
Industry | Mean Gain (Loss) | Mean Beta | Mean Market Cap |
Water Utilities | 2.1% | 0.48 | 983.81 |
Diversified Utilities | -4.4% | 0.58 | 5,393.92 |
All Utility Industries | -6.7% | 0.72 | 5,387.96 |
Gas Utilities | -7.7% | 0.77 | 4,304.33 |
Electric Utilities | -8.9% | 0.81 | 6,529.46 |
Foreign Utilities | -10.3% | 0.76 | 11,017.86 |
The ranking of industry performance follows differences in beta. This makes sense since beta is a measure of a stock’s past co-movement with the market.
We can visualize the performance of different utility industries as a plot of weekly performance as a function of beta:
There is a clear negative dependence on beta, though these points don’t form a straight line. Stocks above the trend have delivered excess returns for the amount of beta risk that is associated with firms in this sector. The extra return above the trend is excess performance, which could be loosely connected*** to market cap or individual industries:
Utility Industry | Mean Gain (Loss) | Mean Market Cap ($ Millions) |
Water Utilities | 2.1% | 984 |
Diversified Utilities | -4.2% | 5394 |
All Utilities | -6.1% | 5388 |
Gas Utilities | -7.0% | 4304 |
Electric Utilities | -8.1% | 6529 |
Foreign Utilities | -10.3% | 11018 |
So which utilities had the most excess return? Here is the list:
Ticker | Company | Industry | Gain (Loss) | Excess Performance | Beta | Market Cap |
Connecticut Water Service Inc. | Water Utilities | 7.93% | 7.9% | 0.42 | 239.25 | |
Chesapeake Utilities Corporation | Gas Utilities | 5.49% | 5.5% | 0.4 | 396.13 | |
Otter Tail Corporation | Diversified Utilities | 5.00% | 5.0% | 1.11 | 773.13 | |
Consolidated Water Co. Ltd. | Water Utilities | 4.24% | 4.2% | 1.43 | 128.86 | |
Unitil Corp. | Diversified Utilities | 4.21% | 4.2% | 0.31 | 292.43 | |
York Water Co. | Water Utilities | 4.03% | 4.0% | 0.46 | 219.93 | |
American States Water Company | Water Utilities | 2.37% | 2.4% | 0.36 | 645.64 | |
Artesian Resources Corp. | Water Utilities | 1.82% | 1.8% | 0.38 | 139.93 | |
Middlesex Water Co. | Water Utilities | 1.43% | 1.4% | 0.4 | 288.5 | |
American Water Works Company, Inc. | Water Utilities | 0.76% | 0.8% | 0.38 | 4886.28 | |
California Water Service Group | Water Utilities | 0.55% | 0.6% | 0.29 | 766.11 | |
New Jersey Resources Corp. | Gas Utilities | 0.53% | 0.5% | 0.19 | 1799.32 | |
SJW Corp. | Water Utilities | 0.51% | 0.5% | 0.63 | 435.33 | |
Pennichuck Corp. | Water Utilities | 0.18% | 0.2% | 0.36 | 133.47 | |
DPL Inc. | Diversified Utilities | 0.13% | 0.1% | 0.6 | 3554.84 |
*Stocks with volumes under 5000 were excluded from the screen, since low liquidity makes them hard to trade. ETFs and other funds were also excluded.
**Mean sector performance, mean market cap, and mean beta were calculated from an equal-weighted average of stocks in that sector.
***A multiple regression of individual utility performance shows that dependence on beta is significant (t stat -9.1) but dependence on market cap was not shown to be significant (t stat -0.99).
