On the note of tax reform, the benefit to utilities is muted because, as regulated industry, utilities will be forced to pass cost savings from tax reform onto consumers.
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.
“I think participants have overreacted to surprise changes to the tax bill and the long-term effects to utility companies will be negligible. I see the decline as a buying opportunity to at least re-test the highs, and make longer-term investments in some of XLU’s top ten holdings,” according to Seeking Alpha.
For more information on defensive ETFs, visit our defensive ETF category.