The utility sector has cooled significantly this year as rising U.S. Treasury yields threaten to sink share prices even lower. The Utility Select Sector SPDR (Utilities SPDR (ETF) (NYSE: XLU)) is the largest fund in this space, with over $6.3 billion in total assets.
A Closer Look At XLU
XLU tracks 32 large-cap utility companies engaged in traditional electric and gas services.
Top holdings in this ETF include:
The majority of the holdings within XLU are prized for their high dividend streams, which translates to an aggregate 30-day SEC yield of 3.43 percent. In addition, this fund charges a net expense ratio of 0.15 percent.
The primary cause of this drop can be attributed to the volatility in interest rates. The CBOE Interest Rate 10 Year T Note (INDEXCBOE: TNX) has risen from a low of 1.65 percent to a current yield near 2.27 percent.
Utility Sector Profile
With the Federal Reserve mulling its first interest rate hike, the rapid price swings in U.S. Treasury yields may become a significant factor in capping gains across this sector.
Yet despite this drop, ETF investors have been reluctant to throw in the towel on utility stocks. XLU has only seen $580 million in outflows this year, which is relatively minor for a fund of this size.
To put that in perspective, the Financial Select Sector SPDR (Select Sector Financial Slct Str SPDR Fd (NYSEARCA:XLF)) has experienced over $2.9 billion in outflows so far in 2015 and XLF is trading near the flat line for the year.
Other similar ETFs that have been impacted by this volatility include:
These two funds, along with XLU, are currently trading below their long-term moving averages and are exhibiting weak price action relative to the broad-market indices.
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