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%.
Another ETF where both stocks reside in the top-five holdings is the PowerShares S&P 500 High Dividend Portfolio (NYSEArca: SPHD), which is one of the top-performing U.S. large-cap ETFs this year due in part to its almost 27% weight to utilities. [Quiet Rally for This Dividend ETF]
SPHD, which has a trailing 12-month yield of 3.33%, features six utilities stocks among its top-10 holdings, including Pepco and Exelon as its two largest holdings. Those stocks combine for 6.2% of SPHD’s weight.
SPHD tracks the S&P 500 Low Volatility High Dividend Index, which is comprised of 50 stocks taken from the S&P 500 that have historically exhibited high dividend yields and low volatility. Consumer staples and financial services combine for another 34% of the ETF’s weight.
Guggenheim S&P Equal Weight Utilities ETF
ETF Trends editorial team contributed to this post.