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Market Overview

Excitement Lurks For The Utilities Sector


The sleepy utilities sector is delivering for investors this year with the widely followed Utilities Select Sector Index higher by nearly 10 percent while yielding just over 3 percent.

For aggressive traders, now could be the ideal time to look for ways to juice utilities sector returns with leveraged exchange-traded funds.

What Happened

The Direxion Daily Utilities Bull 3X Shares (NYSE: UTSL) looks to deliver triple the daily returns of the Utilities Select Sector Index. More than 35 percent of that index's components reported first-quarter earnings last week, and more than 43 percent delivered first-quarter results this week, including Southern Co (NYSE: SO) and Dominion Energy Inc (NYSE: D), which reports Friday. 

Why It's Important

Two weeks ago, UTSL gained 4 percent amid a spate of utilities earnings reports. UTSL, the dominant name among leveraged utilities funds, is up 34 percent year-to-date. For the week ending April 26, UTSL was one of the best-performing bullish ETFs in Direxion's stable.

“Utilities are trading at 18.65 times earnings, just under its all-time high of 19.17 times earnings in 2017. The sector’s dividend yield of 3.42 percent is considered historically low, too,” according to CNBC.

At that point in earnings season, 43 percent of S&P 500 utilities names have missed earnings estimates while 57 percent have beaten estimates.

“Six of the eleven sectors are reporting year-over-year growth in earnings, led by the Health Care and Utilities sectors,” said FactSet.

What's Next

Ahead of the upcoming utilities earnings onslaught, UTSL has been relatively quiet with issuer data indicating there have not been sizable volume increases in the leveraged utilities ETF nor have there haven significant inflows or outflows from the fund.

If the upcoming batch of earnings reports from the utilities are comparable to the last week's reports, traders using UTSL could see comparable upside.

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Posted-In: direxionEarnings Long Ideas News Sector ETFs Trading Ideas ETFs

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