On the back of a 21.5% tumble by 10-year Treasury yields, the normally boring utilities sector has been hot. So much so that the Utilities Select Sector SPDR (NYSEArca: XLU) trails only the Health Care Select Sector SPDR (NYSEArca: XLV) as the best of the nine sector SPDR ETFs.
XLU, has not, however, moved up in a straight line. The usually low beta ETF tumbled nearly 6% in July, providing investors little shelter from a rocky month for U.S. stocks. August brought better things for utilities stocks as XLU lived up to its reputation for being that month’s second-best performing SPDR ETF with a 4.5% gain. [Conservative ETF Ideas for August]
The utilities sector rebound is benefiting some dividend ETFs that employ yield as part of their weighting methodology, including the First Trust Value Line Dividend Index Fund (NYSEArca: FVD). Buoyed by the utilities bounce, FVD raced to an all-time high last Friday, capping an August run of 4.3%.
That says a 25.4% weight to the utilities sector, more than 1,000 basis points higher than the ETF’s second-largest sector weight, is helping FVD achieve new highs. [Utilities Rally Helps Some Dividend ETFs]
Having debuted in August 2003, FVD is one of the oldest U.S. dividend ETFs. FVD’s 182 holdings are pulled from a universe of stocks that have rankings of 1 or 2 in the Value Line Safety Ranking System. From there, Value Line “selects those companies with a higher than average dividend yield, as compared to the indicated dividend yield of the Standard & Poor’s 500 Composite Stock Price Index,” according to First Trust.
Although FVD’s combined weight to the richly valued utilities and consumer staples sectors is nearly 40%, the ETF does offer ample exposure to value sectors by way of an almost 15% weight to financial services names. Adding to FVD’s value credentials is a combined 21% weight to the technology, consumer discretionary and energy sectors.