Last last year, utilities ETFs languished on the basis that fixed-income instruments more attractive on a relative basis, and bond-like equities, like utilities, less enticing. Consequently, utilities may remain flat or underperform other segments of the equities market once rates start ticking higher.
No sector is as negatively correlated to rising interest rates as utilities, meaning the longer the Fed resists raising interest rates, the longer high-yielding utilities stocks and ETFs remain compelling destinations for yield-starved investors.
Home to 38 stocks, FXU has $1.48 billion in assets under management. The ETF’s holdings have a median market value of $14.1 billion.
FactSet projects the utilities sector is expected to experience earnings growth of 4.4% in 2016. Consequently, analysts warned that the lofty prices may not be supported by robust earnings growth. Investors can tap the potential potency of earnings growth via FXU’s methodology at an earnings multiple that implies a slight discount to the broader utilities sector.
For more information on defensive ETFs, visit our defensive ETF category.