Although utilities stocks and ETFs are vulnerable to the notion of higher interest rates, how the group performs after the Fed actually boosts borrowing cost is another, surprisingly positive matter.
“Starting in June 2004, the Fed began hiking rates a quarter of a percentage point at every Fed meeting. Instead of tumbling, utilities rallied strongly. The S&P 500 utilities index rose 32% during the first year of rate hikes, while the broader Standard & Poor’s 500 rose just 8.2%,” according to Barron’s.
XLU, the largest utilities ETF by assets, currently sports a P/E ratio of 15.5. While that is above the long-term average of 15.2, it is, as Barron’s notes, a discount to rate-sensitive real estate investment trusts (REITs) and the S&P 500.
Utilities Select Sector SPDR