Exchange traded funds that invest in utilities stocks have endured the market’s recent turbulence relatively well as investors have shown a preference for more defensive sectors.
Utilities Select Sector SPDR Fund (NYSEArca: XLU) is up 6.4% year to date, compared with a 2.7% gain for the S&P 500, according to Morningstar. Over the past there months, the utilities ETF has climbed 5.2%, while the broader market is in the red with a 2.1% loss. The fund’s top holding is Southern Co. (NYSE: SO) at 8.4% of assets.
Some analysts in recent months have noted that investors have been favoring defensive sectors such as utilities, consumer staples and healthcare. Some investors like utilities for their dividends — the utilities ETF has a dividend yield of 4%, according to manager State Street Global Advisors. [Investors Shift Into Defensive ETFs]
“Last week saw an extension of the ongoing defensive rotation,” said Tarquin Coe, technical analyst at Investors Intelligence. “The Utilities Select Sector SPDR reasserted its outperformance against the SPDR S&P 500 ETF (NYSEArca: SPY). As long as this trend stands the ‘risk-off’ trade will remain in favor.”
The chart below from Investors Intelligence shows the relative performance of utilities against the S&P 500.