Utilities Select Sector SPDR Fund (NYSEArca: XLU) is up 6.4% year to date, compared with a 2.7% gain for the S&P 500, according to Morningstar. Over the past there months, the utilities ETF has climbed 5.2%, while the broader market is in the red with a 2.1% loss. The fund’s top holding is Southern Co. (NYSE: SO) at 8.4% of assets.
Some analysts in recent months have noted that investors have been favoring defensive sectors such as utilities, consumer staples and healthcare. Some investors like utilities for their dividends — the utilities ETF has a dividend yield of 4%, according to manager State Street Global Advisors.
“Last week saw an extension of the ongoing defensive rotation,” said Tarquin Coe, technical analyst at Investors Intelligence. “The Utilities Select Sector SPDR reasserted its outperformance against the SPDR S&P 500 ETF (NYSEArca: SPY). As long as this trend stands the ‘risk-off’ trade will remain in favor.”
The chart below from Investors Intelligence shows the relative performance of utilities against the S&P 500.
If the indicator rolls over, it could be a hint “that the sell-off is nearing completion,” but that hasn’t happened yet, Coe wrote in a report.
“As such, further market weakness looks likely in the sessions ahead,” the analyst said. “This week could also see heightened volatility as a result of possible event risk stemming from Europe.”