The U.S. energy boom has helped lift economic activity across the board, which in turn increased demand for electricity, energizing utilities sector stocks and related exchange traded funds.
Year-to-date, the Utilities Select Sector SPDR (NYSEArca: XLU) has increased 23.0%, Vanguard Utilities ETF (NYSEArca: VPU) gained 21.2% and iShares U.S. Utilities ETF (NYSEArca: IDU) rose 21.7%.
Leo Denault, chief executive of Entergy Corp. (NYSE: ETR), is pointing to a “renaissance in the industrial south” as manufacturing activity picks up to meet a growing U.S. energy industry, reports Rebecca Smith for MarketWatch.
Consequently, the economic activity has helped foster greater demand for electricity. For instance, Big River Steel opened a $1.3 billion steel mill to melt scrap metal in Arkansas due to the inexpensive electricity produced by Entergy’s Arkansas utility.
“There are three things we need–power, power, power,” Mark Bula, Big River’s chief commercial officer, said in the article.
Entergy has seen industrial demand for electricity rise 5.3% in the third quarter year-over-year, compared to a 0.2% dip in residential sales and a 0.9% rise in commercial and government sales.
ETR makes up 2.8% of XLU, 2.1% of VPU and 2.3% of IDU.
Other utilities are also seeing similar trends in the industrial space. For example, American Electric Power (NYSE: AEP), which owns utilities from Texas to Michigan and other Rust Belt areas, said eight of 10 industrial sectors consumed more electricity in the third quarter than in the same quarter last year.
Nick Akin, chief executive of AEP, said that industrial electricity sales from shale-gas producing counties surged 28% in the third quarter. Total industrial electricity sales was up 1.2% in the three months ended September as well.
APE is 5.1% of XLU, 4.0% of VPU and 4.2% of IDU.
Utilities Select Sector SPDR
For more information on the utilities sector, visit our utilities category.
Max Chen contributed to this article.