Utilities ETFs Perform After Rate Hikes - More Upside Possible

The bond-esque utilities sector has also weakened alongside the fixed-income market as Treasury yields rose on the Fed outlook and inflationary pressures.

Utilities stocks and ETFs are extremely sensitive to changes in interest rates. Still, some investors see opportunity with rate-sensitive assets such as XLU and real estate ETFs, noting that 10-year yields are overbought and sentiment against the likes of XLU is at bearish extremes, which could create opportunity from the long side with the utilities sector.

One of the utilities Deutsche is bullish on is American Electric Power Co. Inc. (NYSE: AEP), the sixth-largest holding in XLU. American Electric Power commands a weight of just over 5.1% in the benchmark utilities ETF.

The company “ranks among the nation’s largest generators of electricity, owning nearly 38,000 megawatts of generating capacity in the United States. It also owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined,” according to 24/7 Wall Street.

For more information on defensive ETFs, visit our defensive ETF category.