The utilities sector, already the top performer in the S&P 500 this year by a wide margin, could get another boost when U.S. markets open Wednesday thanks to some mergers and acquisitions news.
On Tuesday night, Bloomberg reported that Exelon (NYSE: EXC), the largest U.S. nuclear power provider and a top-10 holding in several of the largest utilities exchange traded funds, has agreed to purchase Pepco Holdings (NYSE: POM) for $5.4 billion in cash.
Exelon, which has operations in Baltimore and Philadelphia, will broaden its Mid-Atlantic presence with the purchase.
The largest utilities ETFs, including the Utilities Select Sector SPDR (NYSEArca: XLU), are market cap-weighted, meaning these funds are often dominated by companies such as Duke (NYSE: DUK) and Southern (NYSE: SO). Those companies, which have an average market value of over $46 billion, combine for almost 17% of XLU’s weight.
Pepco closed with a market value of $5.71 billion Tuesday. It is 1.1% of XLU’s weight. Exelon is the ETF’s fifth-largest holding with an allocation of 5.85%. [A Soaring Leveraged Utilities ETF]
The $733.9 iShares U.S. Utilities ETF (NYSEArca: IDU) has a combined 5.7% weight to Exelon and Pepco.
There are a couple of ETFs where Pepco looms large, comparatively speaking. The stock is the fifth-largest holding in the Guggenheim S&P Equal Weight Utilities ETF (NYSEArca: RYU) at a weight of 3%. Exelon is RYU’s largest holding at 3.15%.