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Utilities ETFs Were a Steady Hand in a Shaky Market

This article was originally published on ETFTrends.com.

While the rest of the markets stumbled, utilities stocks and sector-related ETFs continued to push forward over October.

Over the past month, the Utilities Select Sector SPDR (XLU) gained 1.9%, Vanguard Utilities ETF (VPU) rose 1.2%, Fidelity MSCI Utilities Index ETF (FUTY) added 1.1% and iShares U.S. Utilities ETF (IDU) increased 1.4%. In comparison, the S&P 500 declined 6.2%.

The utilities sector was suppose to be a throw away investment as many anticipated a strong economy with a full labor market to push up interest rates, which traditionally weighed on the bond-like utilities stocks.

However, with inflation relatively under control and benchmark Treasury yields still stuck around 3%, utilities remain attractive for yield hunters. Moreover, after the recent bout of volatility, investors are still still looking at the bond-esque sector as a safe way to remain the game and generate some extra dividends on the side.

The ongoing economic strength and historically low unemployment rates could also help support the utilities space. The strong consumer sentiment and labor markets could boost demand for new housing and the subsequent demand for utility services. Additionally, the improved economic activity could also bolster utilities demand from commercial and transportation sectors.

Along with the traditional beta index ETFs that are available, potential investors can look to alternative utility ETF strategies as well. For example, the actively managed Reaves Utilities ETF (UTES) , which recently celebrated a 3-year track record, tries to outperform other utility funds by focusing on distinctive opportunities presented by differing regulatory, demographic, economic and climate trends.

Investors can also consider smart beta or factor-based ETFs such as the John Hancock Multifactor Utilities ETF (JHMU) , which select components based on company size where a premium is given on smaller companies over larger companies, relative price where value stocks are selected over growth and profitability where more profitable companies are overweight. The First Trust Utilities AlphaDEX Fund (FXU) selects components based on growth factors including three, six and 12-month price appreciation, sales to price and one year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets.

For more information on the utilities sector, visit our utilities category.

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