Utility ETFs Stabilize as Rates Take a Rest

September 27th at 1:36pm by Tom Lydon

The utility sector ETFs gained ground after a dim performance over the second quarter and into the third. News that the Federal Reserve plans to continue its bond buying program helped bolster the U.S. stock market and various sectors.

“The hunt for steady income led investors to invest in high dividend paying companies, including many utility companies. Also, as the U.S. economic growth continued to be uninspiring, sectors like utility played their defensive role and acted as a safe haven for investors,” Zacks equity research wrote in a recent article. [Utility ETFs for Higher Dividend Yields]

The Utilities Select Sector SPDR (NYSEArca: XLU) gained 2.9% after the  Federal Reserve’s recent announcement to continue with the bond buying program. The ETF also offers an attractive yield of 4.05%. This gain is a turnaround after the sector was one of the worst performers in September. [Interest Rates Hit Utilities Sector ETFs in Q2]

In fact, according to S&P Capital, the utilities sector lagged others in the S&P 500, as 8 out of 10 sectors posted new highs. From April to August the sector was unable to match the upward momentum it has exhibited in 2012 and for the first few months in 2013.

Utility demand is expected to pick up from household usage, manufacturing needs and from the business sector should the U.S. economy remain on track. The healthy dividend yield is another allure of this sector, since the interest rates are expected to stay grounded for the remainder of the year. [Dividend ETFs for the Long Term]

Other focused sector ETFs that posted recent gains include the Vanguard Utilities ETF (NYSEArca: VPU) and the iShares Dow Jones US Utilities (NYSEArca: IDU). IDU gained 2.89% while VPU gained 2.95%.

 

Vanguard Utilities ETF

Utilities, VPU, IDU, XLU, Sector ETFs, ETFs, Interest rate, dividend yield

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.