As mentioned in our ETF Options recap this morning, XLU (SPDR Utilities Select Sector, Expense Ratio 0.15%) August 44 calls traded actively yesterday during a larger than normal sell-off in the sector ETF.
XLU has approximately $6.2 billion in assets under management, including a fresh $134 million that has been added in the trailing one month period, making it the largest Utility sector based ETF by a mile. VPU (Vanguard Utilities, Expense Ratio 0.12%) is the second largest fund in the category with $1.75 billion in assets under management.
With XLU yielding 3.72% versus say SPY (SPDR S&P 500, Expense Ratio 0.09%) yielding 1.96%, Utility ETFs typically are utilized by portfolio managers for income reasons in portfolios, if not to temper overall portfolio volatility by adding what has been historically stable sector equity exposure.
The recent upside call activity in XLU is clearly capturing the upcoming quarterly earnings cycle in the sector, and when we look at the top holdings, we can see that these names all report quarterly results prior to August expiration: (DUK (8.74%), 8/6/15), (NEE (8.45%), 7/29/15), (D (7.70%), 8/5/15), SO (7.39%), 7/29/15), EXC (5.25%), 7/29/15).
Other notable Utility sector ETFs that may trade actively given the interest in XLU lately include IDU (iShares U.S. Utilities, Expense Ratio 0.43%), FXU (First Trust Utilities AlphaDEX, Expense Ratio 0.70%), RYU (Guggenheim S&P Equal Weight Utilities, Expense Ratio 0.40%), and FUTY (Fidelity MSCI Utilities, Expense Ratio 0.12%).
There are two lesser known leveraged ETFs that are geared to the Utility sector as well which may catch some attention in the near term, and they are UPW (ProShares Ultra Utilities, Expense Ratio 0.95%) and SDP (ProShares UltraShort Utilities, Expense Ratio 0.95%). Neither fund trades a ton of volume on a daily basis, with only about 6,700 shares traded apiece on an average daily basis, as compared to the 13 million shares that typically changes hands daily in the more established XLU.
SPDR Utilities Select Sector
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