Compared to the general market in 2022, the utilities sector has actually fared quite well, supporting the notion that the sector can hold up in a down market. One leveraged fund worth noting is the Direxion Daily Utilities Bull 3X Shares (UTSL), which is up about 20% over the past month.
Traders looking for opportunities to build off the strength of utilities can definitely look into UTSL to get that extra leverage in order to maximize gains. If UTSL can continue its uptrend, then it’s certainly one to watch heading into the new year.
UTSL seeks daily investment results equal to 300% of the daily performance of the Utilities Select Sector Index. That extra juice from the triple exposure could amplify profits should the utilities sector witness even more upside in 2023, especially if a safe haven scramble takes place if the U.S. economy enters a recession.
Compared to a broad market option like the Direxion Daily S&P 500® Bull 3X Shares ETF (SPXL), UTSL has been a strong performer, further highlighting the strength of the utility sector not just over the past month, but the whole year. For the year, SPXL is down close to 50% while UTSL is down just 8% in comparison.
When you strip out the leverage inherent in both ETFs, the strength in the utilities sector is still apparent when looking at the S&P 500 Utilities index and the S&P 500 itself. The triple leverage in UTSL is prominent when comparing its performance to the percentage gains of the S&P utilities index (also within the past month).
Utilities in Good and Bad Times
One of the benefits of investing in the utilities sector is its ability to potentially prosper regardless of the current economic cycle. When growth is stagnant, utilities offer an ideal safe haven bet, and when the economy is booming, there’s still upside to be had in the sector.
As mentioned, with the capital markets continuing to worry whether the economy could spin into a recession as a result of continuous rate hikes, the utility sector can provide steadiness in the proverbial eye of the storm. Likewise, they can serve a portfolio purpose during boom times.
“The utilities are a great place to hide when the economy’s deteriorating, but the best of them work even when the economy’s doing fine,” said CNBC “Mad Money” host Jim Cramer.
“They also tend to protect you with bountiful dividends that can cushion any potential downside,” Cramer added.
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