As U.S. stocks plunged Wednesday, a familiar sector provided some refuge for investors. Utilities and the Utilities Select Sector SPDR (NYSEArca: XLU), the largest utilities sector exchange traded fund, performed significantly less poorly than the broader market Wednesday.
Even with concerns about higher interest rates, the rate-sensitive utilities sector has been solid this year as highlighted by a year-to-date gain of almost 7%.
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.
Barclays analyst Blerina Uruci noted: “A return to more seasonally normal temperatures occurred in March, leading to a 8.2% rebound in utilities production on the month. We see the more modest increase in April as a return to the normal run rate,” reports Crystal Kim for Barron’s.