Utilities exchange traded funds may not be as exciting as equivalent financial services, energy and technology funds (just to name a few), but in a sign that some investors are again embracing lower beta fare, utilities ETFs have noticeably strong through the first two and a half month of 2014.
The Utilities Select Sector SPDR (XLU) , the largest utilities ETF, has surged 9.4% this year while the S&P 500 is up just half a percent. The strength of XLU and rival funds such as the Vanguard Utilities ETF (VPU) and the iShares U.S. Utilities ETF (IDU) was on full display last week as U.S. stocks wilted. [ETF Underdogs on the Mend]
“Utilities have had a strong three day rally despite a broader sell-off in the stock market. In fact, when almost all stocks were negative yesterday (March 13), 90% of Utility Stocks were positive on the session ,” notes Corey Rosenbloom of Afraid to Trade.
XLU gained half a percent last Friday while the S&P 500 lost almost 0.3%. Rosenbloom notes that last month, XLU “broke resistance at the $39.00 per share level into an uptrend continuation (breakout event) straight into $41.00 per share.”
In January, XLU was the best performer of the nine sector SPDR ETFs, gaining 4.6%. Last month, XLU was the worst of the nine SPDRs, but it still gained 4.3%. Year-to-date, XLU, VPU and IDU are up an average of 9.2%. XLU and VPU have combine 2014 inflows of nearly $251 million.
Ongoing strength in utilities ETFs coincides with new found strength for consumer staples ETFs, a scenario that proves risk appetite is currently somewhat limited. Since the start of February, the Consumer Staples Select Sector SPDR (XLP) is up almost 7%. In January, XLP lost 4%, a performance that ranked among the worst of the nine sector SPDRs. [Rally in Staples ETFs not a Good Sign]
Utilities ETFs have also benefited as 10-year Treasury yields have dropped 11.4% this year. Declining Treasury yields have also helped dividend ETFs that feature heavy allocations to rate-sensitive utilities stocks.
For example, the iShares Select Dividend ETF (DVY) , which allocated over a third of its weight to the utilities sector at the end of the fourth quarter, is up 2.6% this year. The SPDR S&P Dividend ETF (SDY) has an almost 11% weight to utilities stocks and is higher by 1% while the PowerShares S&P 500 High Dividend Portfolio (SPHD) is higher by 2%. SPHD devotes more than a quarter of its weight to utilities. [Turning the Lights on to Utilities ETFs]
Utilities Select Sector SPDR Fund
Tom Lydon’s clients own shares of DVY.