Analyst Note| Tancrede Fulop, CFA |
After four years of outperformance against the Morningstar DM Europe Index, the Morningstar DM Europe Utilities is down by 9% year to date, underperforming the former by 13%. This is driven by market jitters about rising interest rates, escalating competition in the renewables space, and sector rotation from COVID-19 winners to losers, especially the Integrated Oils. The Morningstar DM Europe Energy index is up by 16% year to date after falling 33% in 2020. We believe the European Utilities' sell-off is overdone and offers opportunities. We view the sector as undervalued by 6% on average with a 4.5% average dividend yield--six names out of 17 are in 4-star territory.