This Utility ETF Is Up 20% Over the Past 3 Months Despite Volatility

It’s been rough for the major stock market indexes, but one sector that’s been seeing green for the past few months is utilities. That’s been evident in the Direxion Daily Utilities Bull 3X Shares (UTSL), which is up over 20%.

UTSL seeks daily investment results, before fees and expenses, of 300% of the daily performance of the Utilities Select Sector Index. The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements, securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

“The sector is the second-best performing one in the U.S. behind energy year to date, trouncing the S&P 500 by 15 percentage points through Friday,” the Wall Street Journal reported. “That leaves utility stocks trading at almost 20 times forward 12-month earnings on average—close to an all-time high and nearly a fifth richer than the S&P 500. The last time utilities fetched such a large premium was during the Covid-19 market panic in March 2020. The staid sector has typically traded at a slight discount to the broader index over the past decade.”

UTSL Chart

Absorbing the Shock of a Recession

There’s a lot of discussion swirling in the capital markets regarding a forthcoming recession. As such, utilities could be one of the sectors to look at in order to absorb the shock of an economic recession should one take place.

“As markets fear a recession, being in the business of collecting monthly checks is understandably appealing to investors,” the WSJ report added further. “Cash-strapped consumers are more likely to pull back on eating out or shopping before risking that the power or gas will be shut off. And, by some measures, utilities look more defensive today than they have in past years, according to Jay Rhame, chief executive officer of Reaves Asset Management, which manages utility exchange-traded funds.”

“At least with utilities, you get a growing income stream. And you’d think that the utility income stream could be better in an inflationary environment than a fixed-income stream,” said Rhame.

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