The utilities sector is trading at heightened valuations 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. XLU currently resides just a few cents below its 52-week high.
“While no one’s quite sure why bonds are acting like they are, higher-yielding sectors like Utilities seem to be benefitting, as the bond market signals that more interest rate hikes this year are getting increasingly unlikely. The dividend yield for the S&P Utilities Sector currently sits around 3.5%, which is a massive 123 basis points above the current yield on the 10-Year Note,” according to ETF Daily News.
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.
For more information on defensive ETFs, visit our defensive ETF category.