Bartlett explained that smaller companies may drive a little more growth and are apt to be acquired by larger companies. Over the past 12 to 18 months there has been a lot of merger and acquisition activity, notably among smaller companies, the analyst added.
The utilities sector has been among the best performing investments this year after investors plunged into the defensive play in search of yield and safety in an environment of historically low yields, slow growth and geopolitical uncertainty.
“Utilities are a bond substitute and are correlated to what is going on in the Treasury market,” Bartlett said.
The utilities play has weakened in recent weeks as the safety play dissipated with the broader equities market pushing toward new highs. The recent pullback gave the sector a breather after utilities surged into overbought territory in early July. Over the past month, UTES fell 2.4% and XLU declined 4.9%. Now, Bartlett argued that after the pullback, utilities look attractively priced to debt securities.
“For someone with a low fixed-income coupon, add something like utilities that do better than bonds,” Bartlett added.
For instance, UTES’s portfolio shows a 2.3% dividend yield, whereas yields on the benchmark 10-year Treasury note is hovering around 1.56%.
For more information on the utilities sector, visit our utilities category.