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Bring Some Sexy To Utilities ETFs

ETF Professor

A rocky start to the year for equities coupled with speculation that the Federal Reserve will be slow to raise interest rates this year, if the central bank does so at all, have been boons for rate-sensitive asset classes and sectors.

Utilities stocks and exchange-traded funds epitomize those trends. Just look at the Utilities SPDR (ETF) (NYSE: XLU). The largest utilities ETF by assets is getting bigger this year thanks to nearly $1.1 billion of inflows. Only six ETFs have added more new assets on a year-to-date basis.

Leading up to the Federal Reserve raising interest rates last month, the first such move by the U.S. central bank in nearly a decade, utilities stocks and exchange-traded funds were widely seen as vulnerable to higher U.S. borrowing costs.

Historical data confirm utilities stocks are the most negatively correlated to rising U.S. interest rates, and as such, they typically lag during rising rates environments. Last year, utilities finished as the third-worst performing sector in the S&P 500.

Another Utilities Name

In addition to XLU, the PowerShares Dynamic Utilities (ETF) (NYSE: PUI) has been enjoying the utilities sector resurgence this year. PUI, however, is a much different beast than traditional cap-weighted utilities ETF like XLU.

PUI tracks the Dorsey Wright Utilities Technical Leaders Index, which “is designed to identify companies that are showing relative strength (momentum),” according to PowerShares, the fourth-largest ETF issuer.

For size freaks, PUI probably was not on their radar until this year. The ETF has $116.6 million in assets under management, nearly $87.1 million of which has arrived this year. That makes PUI the fourth-best PowerShares ETF in terms of assets added.

As a momentum-based ETF, PUI is not exclusively allocated to large-caps. In fact, large-caps represent just over 23 percent of PUI's weight, while small-caps account for nearly 31 percent of the fund.

PUI's top 10 holdings include Duke Energy Corp (NYSE: DUK), NiSource Inc. (NYSE: NI) and WEC Energy Group Inc (NYSE: WEC).

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