It’s no secret that utility exchange traded funds (ETFs) have taken a beating over the last quarter. However, they do have some important benefits. The utilities sector has generally yielded great long-term returns. They also tend to be well-diversified in areas such as electric utilities, natural-gas utilities, telecom and a variety of energy-related stocks. Utilities offer a good opportunity for dividend payouts, which can be another perk.
On the other hand, utility ETFs have had a rocky performance since mid-May and were hit hard by the market drop last week. It marked the first time this sector dropped below the trend line. Although it looks as if the utility ETFs are making a come back, wait until they are at least 3% above their individual trend lines before purchasing.
Some of the utility ETFs and their performance year-to-date:
- Utilities HOLDRs (UTH) – up 6.8%
- iShares Dow Jones U.S. Utilities (IDU) – up 7%
- Utilities Select Sector SPDR (XLU) – up 7.1%
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.