Navigating Crosscurrents: The Virtus Reaves Utilities ETF's Divergent Performance

Virtus Reaves Utilities ETF outperformed in 2025 but fell in Q4, highlighting the sector's clash between AI-driven power demand and high interest rates.

The Virtus Reaves Utilities ETF (UTES) presents a study in contrasts, delivering a powerful full-year return while stumbling in the final quarter. This actively managed fund’s journey highlights the sector's ongoing tug-of-war between long-term structural growth and immediate macroeconomic pressures.

Annual Outperformance Meets Quarterly Weakness

For the full year, the UTES ETF posted a substantial gain of 25.53%, soundly beating its benchmark, the S&P 500 Utilities Index, which advanced by 16.04% over the same period. This strong annual showing, however, was bookended by a disappointing final quarter. In Q4 2025, the fund declined by 4.91%, underperforming its reference index. As of the reporting date of February 27, 2026, the ETF held assets under management of approximately $1.48 billion. The fund also distributed a quarterly dividend of $0.38 per share.

Conflicting Forces Shape Utility Stocks

Recent performance in the utilities sector has been driven by opposing dynamics. On one side, explosive demand for artificial intelligence (AI) is fueling an unprecedented expansion of data centers, sending projections for U.S. electricity consumption sharply higher. This trend boosts investment expectations for power providers. Counteracting this positive force, however, are elevated interest rates and a shift in investor sentiment that saw reduced appetite for AI-beneficiary stocks in the fourth quarter, weighing on relative performance.

The fund’s active management strategy, which selects companies based on financial strength, dividend security, and valuation, led to a mixed contribution from its holdings. Positions in DTE Energy, Duke Energy, WEC Energy, and OGE Energy provided positive returns, largely attributed to trading activity. Conversely, shares such as Talen Energy and Vistra faced selling pressure following previous gains.

Long-Term Growth Anchored in Power Demand

The sector's long-term prospects remain intrinsically linked to the data center and AI boom. Market observers forecast a sustained rise in U.S. power demand for the coming years, potentially repositioning the traditionally defensive utilities market as a growth opportunity.

The critical factor for future share price movement will be the balance between this fundamental demand growth and the trajectory of interest rates, as the capital-intensive industry is highly sensitive to financing costs. The ETF carries an expense ratio of 0.49%.