In the current equities tumult, defensive utilities sector exchange traded funds have been outperforming the broader market.
Since the S&P 500 index’s September 18 high, the Utilities Select Sector SPDR (NYSEArca: XLU) has increased 1.2%. Meanwhile, the S&P 500 has declined 3.7%.
The utilities sector has traditionally acted as a safe-haven play in the equities space. The companies provide stable and steady returns, along with regular dividend payments.
XLU’s “holdings include regulated utilities, diversified utilities, and unregulated power generators, and such companies are known for their reliability and income generation,” according to Morningstar analyst Robert Goldsborough.
Specifically, sub-sector allocations include electric utilities 56.4%, multi-utilities 38.7%, independent power and renewable electricity producers 3.7% and gas utilities 1.2%.
Additionally, XLU provides an attractive dividend yield of 3.61%.
The utilities sector is currently experiencing a boost from income-seekers, with XLU adding $152.1 million in assets since September 18, according to ETF.com data. After the recent sell-off in the equities market, investors have piled into safer fixed-income assets and pushed down the benchmark 10-year Treasury yields, which dipped almost 30 basis points to 2.33% since the September 18 high.
Looking ahead, investors should monitor the electricity demand. According to the U.S. Energy Information Administration, U.S. electricity sales to the residential sector are expected to be 1.7% higher in 2014 year-over-year but fall by 0.3% in 2015. Additionally, U.S. commercial sector electricity is expected to average 0.9% higher in 2014 and grow 0.4% in 2015.
Consumer staples stocks have been the second best performers in the S&P 500. The Consumer Staples Select Sector SPDR (NYSEArca: XLP) has remained flat since the September 18 market highs. The staples sector is widely viewed as a defensive play due to its relative low volatility. [At Least Staples ETFs are Loving This Market]
The sector includes “exposure to mega-cap household names whose products consumers generally continue to buy regardless of the economic climate,” according to Morningstar analyst Robert Goldsborough.
Utilities Select Sector SPDR
For more information on the utilities sector, visit our utilities category.
Max Chen contributed to this article.