As volatility across the global financial markets has heightened over the past week, many investors are finding the need to shift capital in stable income-generating assets. One sector that looks poised for substantial growth heading into the last quarter of the year is utilities. In the article below, we’ll take a look at the charts and try to determine which ones deserve a closer look. (For more, see: Utilities Sector: Industries Snapshot).
Utilities Select Sector SPDR Fund
One of the most popular exchange-traded products used by retail investors looking to increase exposure to utility companies is the Utilities Select Sector SPDR Fund (XLU). In case you don’t follow this ETF, the fund’s managers have designed it so that it tracks in price and yield performance of the Utilities Select Sector Index. The fund is comprised of 30 high-quality U.S holdings and it trades with a 30-day SEC yield of 3.32%. Investors also generally like that the fund has total net assets of approximately $7.7 billion and that it carries a reasonable gross expense ratio of 0.14%.
Taking a look at the chart, you can see that the price has been trading along a well-defined trendline for the past twelve months. The recent bounce higher has caused the MACD indicator to move above its signal line (blue circle), which is a technical buy signal that suggests the price could be headed back to the swing high of $52.57. From a risk management perspective, traders will likely place their stop-loss orders below the combined support of the trendline and the moving average in an attempt to make the most of the risk/reward setup. (For more, see: Utility Funds: A Bright Choice in Bear and Bull Markets).
iShares Global Utilities ETF
Investors looking to diversify away from the country-specific that is inherent in the XLU fund may want to investigate a fund such as the iShares Global Utilities ETF (JXI). As the name suggests, this ETF has been constructed by its managers so that it offers targeted access to utility companies from around the world.
Fundamentally, the fund is comprised of 66 holdings and carries an expense ratio of 0.48% (as of June 30, 2016). Taking a look at the chart below, you can see that the fund has been trading within a defined range since April of this year and the recent bounce suggests that the price is headed toward the support of the upper trendline near $48.53. A close above the previous high would be a technical signal of a move higher and is what many active traders will be keeping their eye on. Stop-losses will likely be set below either the previous low of $46.90 or the long-term 200-day moving average, which is currently trading at $46.08. (For more, see: Top Utility Stocks for February 2020.)
The Bottom Line
Utilities are often regarded as one of the most stable sectors for investment due to the predictability in its cash flow due to the strong recurring nature of operations. The consistent yield combined with bullish chart patterns are added bonuses for those investors seeking shelter from heightened volatility.