Utilities ETFs underperformed the S&P 500 in August and the first half of September as the broad-market index eyed its highest levels since 2007. However, ETFs tracking utilities have jumped the past week as the rally sputters — a sign that investors are rotating into safer sectors.
Utilities Select Sector SPDR (NYSEArca: XLU) has gained 1.6% the past five sessions, while SPDR S&P 500 (NYSEArca: SPY) has shed 1.8%.
Utilities and consumer staples are seen as go-to defensive, conservative sectors that can provide shelter in rocky markets. Utilities are a conservative, mature sector that pays dividends – XLU has a dividend yield of about 4%.
Meanwhile, consumer staples companies sell necessities that consumers need in any economy. [Sector ETFs for Defense]
The underperformance of these two defensive sectors versus the S&P 500 over the summer was a tip-off that investors were growing more comfortable with risk. [Sector ETF Rotation Points to Risk-On]