Investors that embrace the utilities sector and exchange traded funds such as the Utilities Select Sector SPDR (NYSEArca: XLU) often do so for two reasons: Above-average dividend yields and reduced volatility.
During the recent bout of market volatility, utilities ETFs lived up to their shelter from the storm reputation. Over the past 90 days, XLU, the largest utilities ETF by assets, is up 3 percent while the S&P 500 is lower by 5.4 percent.
The utilities sector was suppose to be a throw away investment as many anticipated a strong economy with a full labor market to push up interest rates, which traditionally weighed on the bond-like utilities stocks.
However, with inflation relatively under control and benchmark Treasury yields still stuck around 3%, utilities remain attractive for yield hunters. Moreover, after the recent bout of volatility, investors are still still looking at the bond-esque sector as a safe way to remain the game and generate some extra dividends on the side.
Interesting Data on Utilities Sector
While utilities stocks can outperform during periods of elevated market volatility, historical data indicate the sector is also a winner over longer holding periods.
“The S&P 500 utilities sector has been the best during the post-September market turmoil and has ranked second for 2018 through Nov. 26. But if you look at the longer periods, the total returns exceed those of the entire S&P 500 for all periods except for 10 years,” according to MarketWatch.