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Utilities, Low-Volatility ETFs Bought for Yield, Safety


Among the leaders in terms of net asset flows in recent sessions via creations are Utility names, as the largest ETF in the segment, SPDR Utilities (XLU), continues to trade at new multi-year highs.

Yielding 3.95% with an expense ratio of 0.18%, the sector ETF continues to march forward as investment managers (as has been well documented) have been searching for yield for the past several years in the market place given relative bond yields.

Interestingly, XLU was pummeled in early November last year, staggering more than 8% inside of ten trading sessions on fears that a new U.S. presidential administration would have severe implications on how dividends were treated, and we saw heavy selling pressure not only in the Utilities sector but also segments like REITs and MLPs for that brief amount of time. [Utilities ETFs Fall Before Fiscal Cliff]

In retrospect, that brief period was an enormous buying opportunity given the swift reversal across the board back to the upside inside of 3 months.

XLU has pulled in north of $200 million in recent sessions in terms of inflows, and has an asset base of about $5.7 billion currently.

Top holdings are DUK, SO, D, NEE, and EXC, and we should also point out parallels here between this fund and PowerShares S&P 500 Low Volatility Portfolio (SPLV) — expense ratio 0.25%.

SPLV has also been hot recently in terms of reeling in assets, taking in more than $340 million in recent days and giving it an asset base of $3.6 billion currently.

We have documented such activity in the past, not only earlier this year but throughout 2012 as it seems that investors still find appeal in historically “low volatility” segments of the U.S. equity market, such as Utilities, and this sector is well represented among the top holdings of SPLV (top weightings are CLX, SO, GIS, KMB, JNJ, ED, D, PEP, DUK, and NEE).

The reason we point this out is the clear overlap with top holdings in SPLV and XLU in terms of the Utility names, as the sector itself makes up 30.21% of the overall portfolio, so there is clearly interest right now in the sector and the concept of “low vol” continues to maintain popularity among managers.

SPDR Utilities


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