Utilities exchange traded funds may not be as exciting as equivalent financial services, energy and technology funds (just to name a few), but in a sign that some investors are again embracing lower beta fare, utilities ETFs have noticeably strong through the first two and a half month of 2014.
The Utilities Select Sector SPDR (NYSEArca: XLU), the largest utilities ETF, has surged 9.4% this year while the S&P 500 is up just half a percent. The strength of XLU and rival funds such as the Vanguard Utilities ETF (NYSEArca: VPU) and the iShares U.S. Utilities ETF (NYSE: IDU) was on full display last week as U.S. stocks wilted. [ETF Underdogs on the Mend]
“Utilities have had a strong three day rally despite a broader sell-off in the stock market. In fact, when almost all stocks were negative yesterday (March 13), 90% of Utility Stocks were positive on the session ,” notes Corey Rosenbloom of Afraid to Trade.
XLU gained half a percent last Friday while the S&P 500 lost almost 0.3%. Rosenbloom notes that last month, XLU “broke resistance at the $39.00 per share level into an uptrend continuation (breakout event) straight into $41.00 per share.”
In January, XLU was the best performer of the nine sector SPDR ETFs, gaining 4.6%. Last month, XLU was the worst of the nine SPDRs, but it still gained 4.3%. Year-to-date, XLU, VPU and IDU are up an average of 9.2%. XLU and VPU have combine 2014 inflows of nearly $251 million.
Ongoing strength in utilities ETFs coincides with new found strength for consumer staples ETFs, a scenario that proves risk appetite is currently somewhat limited. Since the start of February, the Consumer Staples Select Sector SPDR (NYSEArca: XLP) is up almost 7%. In January, XLP lost 4%, a performance that ranked among the worst of the nine sector SPDRs. [Rally in Staples ETFs not a Good Sign]
Utilities ETFs have also benefited as 10-year Treasury yields have dropped 11.4% this year. Declining Treasury yields have also helped dividend ETFs that feature heavy allocations to rate-sensitive utilities stocks.
For example, the iShares Select Dividend ETF (NYSEArca: DVY), which allocated over a third of its weight to the utilities sector at the end of the fourth quarter, is up 2.6% this year. The SPDR S&P Dividend ETF (NYSEArca: SDY) has an almost 11% weight to utilities stocks and is higher by 1% while the PowerShares S&P 500 High Dividend Portfolio (NYSEArca: SPHD) is higher by 2%. SPHD devotes more than a quarter of its weight to utilities. [Turning the Lights on to Utilities ETFs]
Utilities Select Sector SPDR Fund
Tom Lydon’s clients own shares of DVY.