Utilities ETF Plunges on ‘Tremendous’ Volume, Dividend Tax Concerns

Utilities Select Sector SPDR (XLU) options activity picked up considerably yesterday as the ETF plunged to levels not seen since this early spring and on tremendous volume in the underlying.

Typically averaging about 7 million shares, XLU volume topped 15 million shares yesterday and we saw call buying on this weakness, with these options players perhaps positioning for a bounce in the sector which is off more than 7% in the past month alone. It is also possible that this may be a “yield” play or a shift towards what are typically thought of as defensive equities, as the Utilities space has traditionally been.

The “difference” this time around is that there is clearly concern among many that tax policy in the U.S. concerning dividends will change for the worse for holders of equities that traditionally spin out hefty dividends, and it is likely no coincidence that this sector has taken it on the chin following President Obama’s re-election.

Currently, XLU boasts a yield of 3.88% versus the S&P 500 Index yield of 2.02%. Top holdings currently in XLU are DUK (9.33%), SO (8.96%), EXC (6.68%), D (6.62%), and NEE (6.48%).

While XLU is the largest ETF in the Utilities sector in terms of assets (with nearly $6 billion under management currently), other plays will likely be more active than typically amid this recent downdraft in this sector including VPU (Vanguard Utilities), IDU (iShares DJ U.S. Utilities), FXU (First Trust Utilities AlphaDEX), RYU (Guggenheaim S&P 500 Equal Weight Utilities), and PUI (PowerShares Dynamic Utilities) to name a few.

Utilities Select Sector SPDR

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.