The acceleration of the U.S.-China trade wars have turned an underperforming sector into a new winner as the decade-running bull market becomes more volatile. Utility stocks as a group have sped past the broader market over the past month, rising 6% as a group, and with some gaining as much as 10%, compared to the S&P 500's modest 0.6% growth. Leading utility plays include NextraEnergy (NEE), The Southern Company (SO), Duke Energy Corp. (DUK), Dominion Energy Inc. (D), American Electric Power Company Inc. (AEP), Exelon Corp. (EXC), Consolidated Edison Inc. (ED), Xcel Energy (XEL), among others, as outlined in a recent CNBC story. (For more, see also: 9 High-Octane Stocks Poised to Rise Higher.)

XLU Chart

XLU data by YCharts

Investors Turn to Defensive Sectors

While over the past few years, growth investors have funneled capital into high-flying tech titans like Amazon.com Inc. (AMZN) and Facebook Inc. (FB), many investors are now turning more defensive as the Street becomes increasingly bearish on the possibility of a forthcoming market downturn. Investors have viewed utility stocks' defensive characteristics as making them an ideal haven from a series of market swings on new trade war concerns and protectionist rhetoric from the White House.

"An increase in tensions would lead to a rise in recessionary concerns and a decline in yields, leading to a rotation away from financials and toward bond proxies,” wrote Credit Suisse’s equity chief Jonathan Golub in a note earlier this year, as cited by CNBC. Meanwhile, the utilities-tracking XLU ETF has risen in 13 of the last 14 trading sessions as of Friday. Gina Sanchez, CEO of Chantico Global, says that the run is likely to continue as investors retreat into more stable sectors, as reported by CNBC. 

Company One Month Performance
NextraEnergy 7.8%
The Southern Company 10.8%
Duke Energy Corp. 10.7%
Dominion Energy 9.2%
American Electric Power 11.9%
Exelon 5.9%
Consolidated Edison 9.8%
Xcel Energy 9.5%

Sanchez likes utilities due to their solid fundamentals and U.S.-focused businesses, which are more likely to withstand international trade tensions. The analyst also highlighted utilities' high dividend yields, with the XLU carrying a yield of 3.3%. Within the sector, some firms offer yields well above the average, including Southern Company with a dividend yield over 5%, Duke Energy at 4.6% and Dominion Resource with a 4.8% dividend yield. 

Analysts at Goldman Sachs have recommended that investors consider domestic, consumer companies as a way to hedge against trade uncertainty. 

"Many Trump campaign proposals, such as infrastructure spending and tax reform, that investors had expected would boost U.S. growth have not been implemented. As a result, domestic-facing firms have lagged," wrote David Kostin, the bank's chief U.S. equity strategist, in a note one year ago. With these stocks now undervalued and the tides shifting in favor of companies with the lowest overseas sales as a percentage of overall revenues, sectors such as telecommunications, utilities and real estate look like solid plays, according to Goldman. (For more, see also: 4 Food Stocks to Outperform Amid Trade Uncertainty.)

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