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Utility ETFs Gain Amid Stock Market Decline

The major U.S. indexes experienced a sharp fall on Dec 4. S&P 500, Dow Jones Industrial Average and Nasdaq Composite Index were down 3.2%, 3.1% and 3.8%, respectively. The small-cap Russell 2000 index plunged nearly 4.4%,   recording its biggest one-day plunge in more than seven years. Worries surrounding economic slowdown and uncertainties surrounding the U.S.- Sino trade war are among the likely factors behind the plunge

This marks a sharp reversal from Dec 3 when Wall Street rallied, following the trade truce between Washington and Beijing in the recently concluded G-20 summit in Argentina. Dow Jones Industrial Average gained 1.1% on the day while S&P 500 and Nasdaq were up 1.1% and 1.5%, respectively.

Trade War Fears Still Loom

The tweet from President Trump did not help the stock market on Dec 4. He tweeted, "President Xi and I want this deal to happen, and it probably will," Trump tweeted. "But if not remember... I am a Tariff Man." This further dented investors’ confidence. Steel and aluminum tariffs have significantly increased the cost of raw materials. Also, it has become difficult on part of companies to make policy decisions due to uncertainties surrounding the trade war (read: Trump-Jingping Truce to Boost These ETFs).

Flattened Yield Curve

Gap between short- and long-term yields have been narrowing this week. When the short-term yields approach long-term yields, it raises uncertainty about the immediate future. On Dec 3, the gap between the two-year and 10-year Treasury yields narrowed to its lowest level in a decade, falling below 0.15 percentage points. However, the gap narrowed further on Dec 4. Currently, the difference is the smallest since just before the Great Recession. This might force the Fed to rethink its pace of rate hikes (read: What Caused Huge Outflows in Regional Bank ETFs in November).

Narrowing of the yield curve also cuts down the profitability of banks. SPDR S&P Regional Banking ETF KRE fell about 5.5%, its worst day since June 2016.

Gains in the Utilities Sector

The S&P 500 utilities sector closed at its highest level since December 2017. Investors rush to this safe haven in times of market upheaval. The sector is known for its above-average dividend yields and steady revenues.

Utility ETFs to Tap

These ETFs experienced positive pricing action on Dec 4 and could be hot among investors in the coming days, given the signs of easing economic activity and geopolitical risks (see: all the Utilities/Infrastructure ETFs here).

Utilities Select Sector SPDR Fund XLU

The fund tracks the Utilities Select Sector Index, which includes companies that produce, generate, transmit or distribute electricity or natural gas. It comprises 29 holdings. The fund’s AUM is $8.2 billion and the expense ratio is 0.13%. The ETF gained nearly 0.1% in the last trading session (read: Markets in Red for the Year: Follow Goldman With 3 ETF Tactics).

Vanguard Utilities ETF VPU

The fund tracks the MSCI US Investable Market Utilities 25/50 Index, which includes companies that distribute electricity, water, or gas, or that operate as independent power producers. It comprises 71 holdings. The fund’s AUM is $3.4 billion and expense ratio is 0.10%. It was up 0.1% in the last trading session.

iShares U.S. Utilities ETF IDU

The fund tracks the Dow Jones U.S. Utilities Index and provides exposure to companies supplying electricity, gas and water. It comprises 51 holdings. The fund’s AUM is $767.2 million and expense ratio is 0.43%. The fund gained 0.1% in the last trading session.

Fidelity MSCI Utilities Index ETF FUTY

The fund tracks the MSCI USA IMI Utilities Index and comprises 69 holdings. The fund’s AUM is $ 493 million and expense ratio is 0.08%. The fund gained 0.1% in the last trading session.

Invesco S&P 500® Equal Weight Utilities ETF RYU

The fund tracks the S&P Equal Weight Index Utilities consisting of equally weights stocks found in the utilities and telecommunication services sectors of the S&P 500 Index. It comprises 30 holdings. The fund’s AUM is $276.2 million and expense ratio is 0.40%. It gained 0.4% in the last trading session.

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