Ten-year Treasury yields have tumbled another 13.3% to start 2015 after falling 27.3% last year. Predictably, the ongoing declines in U.S. government bond yields has continued being a boon for some beloved, rate-sensitive exchange traded funds.
Entering Thursday, the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) and the iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR) were up 5.9% and 5.3%, respectively, to start 2015. Those stout performances come after TLT jumped 27.3% last year while IYR gained 26.7%. In the case of TLT, the longer-dated bond ETF more than doubled the returns of the S&P 500 last year. [Treasury ETFs Flex Their Muscles]
Other rate-sensitive ETFs are off to stellar starts in 2015 as well with the Vanguard REIT ETF (NYSEArca: VNQ) and the SPDR Dow Jones REIT ETF (NYSEArca: RWR) each up nearly 7% after posting an average 2014 gain north of 31%.
Some may be concerned that REITs are sensitive to changes in interest rates. Notably, the fall in interest rates have made the asset more attractive as a yield-generating alternative, but some fear the asset will fall out of favor once rates rise. [REIT ETFs Keep Soaring]
To that point, TLT and IYR are bumping against multi-year resistance and what the ETFs do from here could be a signal regarding markets’ interest rate expectations, according to Chris Kimble of Kimble Charting Solutions.
The same can be said of the Utilities Select Sector SPDR (NYSEArca: XLU). XLU’s start to 2015 is more tame than that of REIT ETFs or TLT, but a 4.2% gain is still nothing to scoff at. Remember, that comes after XLU, the largest utilities ETF, climbed almost 29% last year, making it the best performer among the nine sector SPDR ETFs.
Like IYR and TLT, XLU is trading around important multi-year resistance and how markets decide to treat utilities stocks in the coming weeks could also be a signal regarding investors’ bets on the Federal Reserve’s next move.
Entering 2014, XLU looked vulnerable to declines, at least based on the utilities sector’s frothy valuations. At the start of the year, XLU had a price-to-earnings ratio of 18.8 and a price-to-book of 1.8, according to Morningstar data. In comparison, the S&P 500 index has a 18.0 P/E and a 2.5 P/B. [Utilities ETFs Look Expensive]
Investors have not shied away from utilities ETFs simply because of elevated valuations. The ETF has added $312.4 million in new assets this year and to this point in Thursday’s session, four of the 20 ETFs that have made all-time highs are utilities funds, including XLU.
Chart Courtesy: Kimble Charting Solutions