Company: GLU-PB
Filing Date: 2025-03-10
Form Type: N-CSR
Source: 0001829126-25-001658
Chunk: 2

Company: GABELLI GLOBAL UTILITY & INCOME TRUST
Filing Date: 2025-03-10
Form: N-CSR
Chunk 2
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 S&P Utility Index (SPU) returned 23.4% compared to the S&P 500 Composite’s return of 25.0%. The SPU performance was led by independent power producers, including Constellation Energy (CEG; +93%), Vistra (VST; +261%; added in May of 2024), and NRG Energy (NRG; +79%), which surged on excitement over the potential for artificial intelligence (AI) data center power demand. Regulated utilities also benefitted from enthusiasm about future higher electric sales, moderating inflation and lower short-term interest rates. The median utility stock return was more muted as the 15-stock Dow Jones Utility Average returned 15.2%. The annual returns include December declines of -7.9% and 8.9%, respectively, in the SPU and UTIL primarily due to higher long-term rates and a steepened yield curve.

In 2025, we expect utility stocks to benefit from structural tailwinds of accelerated electric demand, infrastructure investment and stronger EPS growth. The world is in a global ‘arms race’ for AI superiority which requires massive new power hungry data centers. The mega-cap tech companies (hyperscalers) including MSFT, GOOG, META, and AMZN are aggressively courting electric utilities to build the infrastructure to power mega-data centers, some of which use as much power as small cities. In addition, ongoing electrification and manufacturing on-shoring are adding to electric demand. The utility and power sectors are shifting to a growth mode to try to keep up with demand.

The first wave of winners was the merchant or non-regulated power companies. Regulated electric utilities represent the second wave and will benefit from selling existing power capacity, adding power capacity (including batteries) and upgrading/expanding the transmission and distribution network. Policymakers support the investment and want de-carbonization, renewable energy and conservation. In the US, we expect the relaxation of some environmental and regulatory rules to help “green light” an “all of the above” power development strategy. The confluence of these dynamics could help drive utilities to even higher EPS growth than current 5-8% CAGR targets.

European utilities face greater challenges due to structural (political) and resource challenges (natural gas) associated with an ambitious clean energy transition and geopolitical risks, including a historical dependence on Russia. The EU and several countries have placed constraints on data center growth. Some pressure related to energy supply has eased: LNG imports ramped up, and offshore wind