Market Overview

Traders Search For Adventure With A Boring Sector

Traders Search For Adventure With A Boring Sector

When stocks faltered in the fourth quarter, investors rotated out of higher beta, cyclical sectors, such as technology, into more defensive segments.

Predictably, that rotation included moves to the consumer staples and utilities sectors, groups not usually thought of as adventurous.

What Happened

Betraying its usually docile reputation, the Utilities Select Sector Index (IXUTR) faltered in December, but the widely followed utilities gauge is rebounding to start 2019 and some data points indicate traders are looking to amplify potential gains with the utilities sector.

The Direxion Daily Utilities Bull 3X Shares (NYSE: UTSL) could benefit if more investors flock to defensive sectors. UTSL, the marquee in the leveraged utility exchange traded funds space, looks to deliver triple the daily returns of the Utilities Select Sector Index.

Why It's Important

Last year, utilities was the second-best sector in the S&P 500 behind only healthcare. That even as interest rates were increased four times by the Federal Reserve. Due to the sector's bond-like characteristics, utilities are often viewed as vulnerable higher interest rates.

“Although the sector lagged behind the market early in 2018, it ended up with a total return of 4.1%, compared with minus 4.4% for the S & P 500,” according to Barron's.

UTSL surged 3.79 percent on Tuesday, putting a dent in some of the losses it incurred last month. Although the utilities sector is usually docile and slower-moving compared to other groups, UTSL's loss of more than 15 percent over the past month is a reminder that this is a leveraged and as such is best used as a short-term trading instrument.

What's Next

Traders have recently been displaying some enthusiasm for UTSL. For the 10 days ended Monday, Jan. 7th, only one other leveraged Direxion ETF had inflows that were a greater percentage of assets than the 36.50 percent sported by UTSL, according to issuer data.

With fourth-quarter earnings season looming, UTSL could be of use to risk-tolerant traders. From January 22 through January 25, nearly 17 percent of the members of UTSL's underlying index report fourth-quarter results. During the third full week of February, almost a third of those stocks report earnings.

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