Why Reaves Utility Income Trust (UTG) Is the Undervalued High-Yield Powerhouse for AI-Driven Infrastructure Growth

In an era where artificial intelligence (AI) is reshaping industries, energy demand is surging at an unprecedented rate. Hyperscale data centers, AI training models, and cloud computing require vast amounts of reliable, low-cost power—creating a tailwind for utility companies and infrastructure-focused closed-end funds (CEFs). Among these, Reaves Utility Income Trust (UTG) stands out as a compelling opportunity for income investors seeking stability, growth, and exposure to the AI revolution. With a robust 6.58% yield, active management, and a slight NAV discount, UTG offers a unique blend of defensive positioning and forward-looking exposure to the energy infrastructure underpinning AI's next phase.

The AI-Utility Nexus: A Structural Tailwind

AI's exponential growth hinges on two critical pillars: energy reliability and digital infrastructure. While much of the focus is on tech stocks, the utilities and communication services sectors are quietly becoming the backbone of this transformation. Reaves Utility Income Trust's portfolio is strategically aligned with these trends.

As of March 31, 2025, 76.13% of UTG's holdings are in the Utilities sector, with top names like Talen Energy Corp, Vistra Corp, and Constellation Energy leading the charge. These companies are not just passive beneficiaries of AI—they are actively reshaping their operations to meet its demands.

• Talen Energy recently acquired two gas-fired plants to bolster its capacity in the PJM Interconnection, a key region for data center expansion. Its partnership with Amazon's AWS to supply 2,000 MW of carbon-free nuclear power directly supports AI workloads requiring 24/7 uptime.
• Vistra Corp has expanded its natural gas fleet to 2,600 MW, ensuring dispatchable power for AI data centers. Its nuclear assets provide a stable, low-emission baseload, aligning with corporate sustainability goals.
• Constellation Energy has secured 20-year power purchase agreements (PPAs) with Microsoft and Meta, leveraging its nuclear fleet to deliver carbon-free energy for AI infrastructure.

Meanwhile, UTG's 17.42% allocation to Communication Services—led by Deutsche Telekom AG—exposes investors to fiber-optic networks critical for high-speed data transmission. Deutsche Telekom's €10 billion AI Gigafactory partnership with Nvidia and Brookfield is a direct extension of its fiber investments, aiming to build a sovereign European AI cloud.

A High-Yield, Active-Management Play in a Low-Rate World

UTG's 6.58% distribution rate (annualized at 6.68% of NAV) is a standout in today's low-yield environment. The fund's monthly distribution of $0.20 per share is sourced from a mix of net investment income (32%) and long-term capital gains (68%), offering investors a sustainable income stream.

What sets UTG apart is its active management approach. With a 51% portfolio turnover rate, the fund dynamically rebalances its holdings to capitalize on emerging opportunities. For example, its exposure to international utilities (Germany, Canada, Norway) diversifies risk while tapping into global AI infrastructure demand. This agility is rare among traditional utility CEFs, which often prioritize static, dividend-focused portfolios.

The NAV Discount: A Compelling Entry Point

Despite its strong fundamentals, UTG trades at a 1.17% premium to NAV as of July 17, 2025. While this may seem counterintuitive, historical context reveals a slight discount over the past year (average of -0.08%). A premium suggests market optimism, but it also means investors are paying a modest premium for a fund with a 3-year average premium of 0.29%. For income-focused investors, this represents a low-risk entry point to access a diversified, high-yield portfolio with AI-driven growth potential.

Strategic Diversification in a Volatile Market

UTG's portfolio is a masterclass in balancing stability and growth. While 76% is in utilities, the 13.7% Energy allocation and 17.4% Communication Services stake provide exposure to sectors directly fueling AI expansion. The fund's geographic diversification—109.85% U.S. equities plus international holdings—mitigates regional risks while capturing global infrastructure trends.

Moreover, UTG's expense ratio of 2.43% is reasonable for a CEF with this level of active management and international reach. The fund's managers, Timothy O. Porter and John P. Bartlett, have a proven track record of navigating energy transitions and regulatory shifts, further enhancing its appeal.

Investment Thesis: A Hedge for the AI Era

For investors seeking a high-yield, defensive play in a low-rate world, UTG offers a rare combination of:
1. Stable income from utilities and infrastructure.
2. Growth potential from AI-driven energy demand.
3. Active management to adapt to market shifts.
4. A slight NAV discount as a margin of safety.

While the fund's premium to NAV may limit immediate capital appreciation, its long-term positioning in AI-critical sectors and disciplined distribution strategy make it a compelling addition to a diversified portfolio.

Final Take

Reaves Utility Income Trust is more than a utility CEF—it's a bridge to the future of energy and AI. As data centers and AI models consume an ever-growing share of global electricity, UTG's portfolio of utilities, energy providers, and communication services is uniquely positioned to benefit. With a 6.58% yield, active management, and a slight NAV discount, UTG offers income investors a rare opportunity to hedge against volatility while participating in the infrastructure revolution powering the AI economy.

For those seeking a high-yield, strategic play in the AI-driven infrastructure boom, UTG is a name worth watching—and buying.