The Utilities Select Sector SPDR Fund ETF (NYSERCA:XLU), which follows the public services sector, rose around 5.6% in the second quarter of 2024, outperforming the broader S&P 500 index, which increased 4.6% During the same period.
On a YTD basis, the ETF rose by 8.8% While the utility index (SP500-55) had increased by 7.6%, but it is still lagging behind the rebound of the benchmark index almost 15%. XLE growth so far this year is the highest room compared to its ten other S&P sector peers.
Within the index, Electrical Service Companies (SP500-551010) increased by 10%Gas Utilities (SP500-551020) rose marginally at 0.65%Multiple Services (SP500-551030) was up to 3.49%Water Services (SP500-551040) was fell 2.2%and independent power producers (SP500-551050) fell 0.80% till the date.
However, the fund, which features companies ranging from electricity providers to water providers, found itself at the bottom of the worst-performing S&P 500 sectors over the one-month period. down 3.62%.
XLU has $13.93 billion in assets under management as of June 28, 2024, and its top three holdings include NextEra Energy (NEE), which makes up 14.15% of the fund, followed by Southern Company (SO) with 8.05% and Duke Energy (DUK) with 4.74%.
U.S. equity fund flows into and out of the utilities sector have been in the green for most weeks in the second quarter of 2023. The utilities-focused ETF has seen a net inflow of $1.11 billion year to date.
Image source: etfdb.com
Main movements to date
- Winners: Vistrá (VST) +123%
- Constellation of Energy (CEG) +71%
- NRG Energy (NRG) +51%
- GE Vernova (GEV) +31%
- Public Utilities Group (PEG) +21%
- Losers: Xcel Energy (XEL) -14%
- AES Corporation (AES) -9%
- Eversource Energy (ES) -8%
- WEC Energy Group (WEC) -7%
- Exelon (EXC) -4%
What quantitative measures say
XLU received a Hold rating from Seeking Alpha’s Quant Rating system with a score of 2.87 out of 5, supported by an A+ for liquidity and an A in the expense category. The ETF received a C+ for momentum, an A+ for dividends, but a D for risk.
What analysts say
Seeking Alpha contributor High Yield Investor said in its May 22 report that “major institutional investors are pouring trillions of dollars into the utilities sector amid serious near-term headwinds due to very attractive tailwinds.” long-term for the sector. For retail investors who want to invest alongside them in pursuit of this thesis, XLU is arguably the best option if low-cost, passive, diversified exposure is your priority.”
The author also noted that significant challenges remain for the utilities sector, the biggest of which is the longer-term, higher interest rate environment.
“Utilities are often viewed as bond substitutes due to the regulated nature of their cash flows, which generally makes them quite stable and defensive in all economic environments. As a result, higher interest rates suppress utility stock prices during periods of elevated rates because markets require higher dividend yields and earnings from these bond-like stocks,” the author said.
Another SA contributor, Dane Bowler, writes that there have been two key changes in the outlook for utility investment in recent years: 1. Valuation has become cheaper. 2. Fundamental growth has improved.
“With above-normal growth and a reasonable valuation, I believe utilities have become attractive investments. Although the sector as a whole appears opportunistic, some individual stocks are better positioned than others,” Bowler said in his analysis.