The Utilities Select Sector SPDR (NYSEArca: XLU), the largest utilities sector exchange traded fund, is up about 8.1% year-to-date. That performance is solid when considering investors have preferred growth and momentum stocks and when noting the Federal Reserve has increased interest rates twice in 2017.
As is widely known, the Federal Reserve holds its July meeting this week. Fed meetings can potentially put focus on rate-sensitive asset classes and sectors, including utilities. XLU yields about 3.3% on a trailing 12-month, making it and rival utilities ETFs popular alternatives to lower-yielding bond funds. The sector, one of the smallest sector allocations in the S&P 500, is also one of the least volatile.
“According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, the top four stocks to own during Fed weeks (sorted by percent positive and average return) are out of the utilities sector.,” according to Schaeffer’s Investment Research. “PPL Corp. (NYSE: PPL) stock leads the pack, boasting the best win rate of all S&P 500 Index (SPX) stocks, ending Fed weeks on the plus side 85% of the time going back to 2015. Further PPL has averaged a weekly return of 1.93%. Scana (NYSE: SCG) has fared similarly well, boasting a healthy average Fed-week return of 1.98%, and ending the week higher 80% of the time.”