S&P Bullish On Two Utilities ETFs
With market volatility at unprecedented levels, this is an environment conducive to playing some defense and for those that are believers in the “boring is beautiful” theme, utilities stocks and ETFs might be one place to find some shelter from the storm.
Standard & Poor’s Equity Research recently published a note on the utilities sector, boosting its rating on the group to “overweight” from “marketweight,” noting that economic uncertainty in the U.S. and Europe could continue to fuel defensive sector outperformance.
S&P Equity research notes utilities as a group yield around 4.5%, more than double the 2.2% dividend yield offered by the broader market.
With sixteen ETFs devoted to the utilities sector, investors have no shortage of options for gaining exposure to this boring yet steady sector, but S&P advises drilling down on two utilities ETFs: The Utilities Select Sector SPDR (NYSE: XLU) and the WisdomTree Global ex-U.S. Utilities Fund (NYSE: DBU).
The research firm has “overweight” ratings on both ETFs, making them the two highest-rated utilities ETFs in S&P’s coverage universe.
With an expense ratio of just 0.2%, XLU scores well on S&P’s cost factors and risk considerations metrics, making it S&P’s top-rated utilities ETF. XLU has about $4.3 billion in assets under management.
By comparison, DBU is much smaller with about $30 million in AUM, but the ETF’s international emphasis is a departure from what is normally found among utilities ETFs. DBU was yielding 4.4% as of Tuesday’s close.
S&P also noted that 14 utilities ETFs had relevant year-to-date performance data available, but just five were positive on the year. XLU was the leader of that group with a gain of nearly 6%.
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