Utilities is the second-best performing S&P 500 sector in Q2 (NYSEARCA:XLU)

SPDR Utilities Select Sector ETF (NYSEARCA:XLU), which tracks the utilities sector, has increased about 5.6% in the second quarter of 2024, outperforming the broader S&P 500 index, which increased by 4.6% in the same period.

Cumulative, ETF increased by 8.8% while the usability index (SP500-55) had increased by 7.6%, but still lags the benchmark index’s growth almost 15%XLE growth this year is fourth highest compared to ten other S&P sector competitors.

Within the index of electrical companies (SP500-551010) increased by 10%Gas industry (SP500-551020) increased slightly up to 0.65%Multi-Utilities (SP500-551030) was increase by 3.49%waterworks (SP500-551040) was decrease by 2.2%and independent power producers (SP500-551050) fell by 0.80% Meet with someone.

However, the fund, which holds companies from sectors ranging from electricity to water suppliers, was last in line for the worst-performing sectors of the S&P 500 index over a one-month period, down 3.62%.

As of June 28, 2024, XLU has $13.93 billion in assets under management and its top three holdings include NextEra Energy (NEE) with 14.15% of the fund, followed by Southern Company (SO) with 8.05% and Duke Energy (DUK) at 4.74%.

Flows into and out of U.S. equities funds for the utilities sector have been in positive territory for most weeks in the second quarter of 2023. The services-focused ETF has seen net inflows of $1.11 billion to date.

Image Source: etfdb.com

The biggest YTD changes

• Profits: Vista (VST) +123%
• Constellation Energy (CEG) +71%
• NRG Energy (NRG) +51%
• GE Vernova (GEV) +31%
• Public Service Enterprise Group (PEG) +21%
• Losers: Xcel Energy (XEL) -14%
• AES Company (AES) -9%
• Eversource Energy (ES) -8%
• WEC Energy Group (WEC) -7%
• Exelon (EXC) -4%

What do quantitative measures say?

XLU has been rated Hold by Seeking Alpha’s Quant Rating System with a rating of 2.87 out of 5, supported by an A+ in Liquidity and an A in Expense. The ETF was rated C+ for momentum, A+ for dividends, but D for risk.

What analysts say

Seeking Alpha contributor High Yield Investor said in its May 22 report that “prominent top institutional investors are investing trillions of dollars in the utilities sector in the face of severe near-term headwinds caused by very attractive long-term tailwinds for the sector.” For retail investors looking to invest alongside them to pursue this thesis, XLU is likely the best choice if passive and diversified exposure at low costs is a priority.”

The author also noted that the utilities sector continues to face significant challenges, the biggest of which is maintaining higher interest rates for an extended period of time.

“Utilities are often viewed as bond proxies due to the regulated nature of their cash flows, which makes them generally quite stable and defensive in any economic environment. “As a result, higher interest rates depress utility stock prices during periods of high rates because markets demand higher dividends and stock returns on these bond proxies,” the author said.

Another SA specialist, Dane Bowler, writes that there have been two key changes in the investment outlook for utilities over the past few years: 1. Valuations have fallen. 2. Economic growth has improved.

“With higher-than-usual growth and a reasonable valuation, I believe utilities have become an attractive investment. While the sector as a whole looks opportunistic, some individual companies within it are better positioned than others,” Bowler said in his analysis.

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