A few days back, the market was abuzz with faster-than-expected rate hike bets in the U.S. on hawkish tip-offs from some Fed officials after a dovish meeting in mid March. However, recently Fed chair Yellen put all hearsay to rest by emphasizing global growth issues. Also, the Fed chair indicated a 'cautious' stance that may be adopted by the U.S. central bank on the policy tightening issue going forward.
Following the dovish statements, stocks and bonds soared. Investors should also note that yields on U.S. treasuries dropped following Yellen's remarks. Below we discuss a few ETFs that popped after Yellen's speech and could remain in focus ahead.
In a falling yield environment, investors rushed to tap every possible option that can cater to their income need. Along with broader dividend funds, high yielding sector ETFs have also been witnessing strong pricing performance lately. Below we highlight a few winning sectors and their ETFs that hit all-time highs reflecting Yellen's comments.
Utilities usually have strong yields and are embraced by investors when Treasury bond yields fall. Also, the utility sector is considered a safer option when volatility levels spike. This sector is less volatile in nature and relatively immune to the market peaks and troughs. Moreover, the space is less exposed to currency translation due to lack of foreign coverage (read: Protect Your Portfolio with These Utility ETFs).
By virtue of their stronger yields and defensive nature, the following utilities ETFs touched all-time highs lately.
The Utilities Alphadex First Trust (NYSEARCA:FXU) hit an all-time high on March 31 2016. The fund added over 2.7% in the last five trading days (as of March 31, 2016) and yields about 2.85% annually and FXU has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Smart Beta ETFs That Stood Out Amid Market Volatility).
The Guggenheim S&P Equal Weight Utilities ETF (NYSEARCA:RYU) hit an all-time high on March 31, 2016. The fund returned 2.6% in the last five trading days (as of March 31, 2016) and yields 3.20% annually and follows an index which is the equal weighted version of the S&P 500 Utilities Index.
Real Estate is also a highly interest rate sensitive sector. These firms are usually highly leveraged and face maximum interest rate risk in the REIT world. Now, REITs are required to distribute 90% of their annual taxable income through dividends which make them high dividend yield vehicles. With interest rates expected to remain subdued for longer and bond yields trending down, the Real Estate Select Sector SPDR ETF (NYSEARCA:XLRE) hit an all-time high, adding about 2.2%, on March 29, 2016.
The fund yields 2.06% annually (as of the same date). The fund was up over 3.7% in the last five trading days (as of March 31, 2016).
Telecom, another defensive sector by nature, also offers investors solid dividend yields. The Fidelity MSCI Telecommunications Services Index ETF (NYSEARCA:FCOM) hit an all-time high on March 31, 2016. The product advanced about 4.4% in the last five trading days (as of March 31, 2016).
Consumer staple stocks have been performing better in recent months as investors are slowly moving toward defensive sectors. Also, consumer staples stocks and ETFs are high yield in nature which put this sector in focus following Yellen's speech. Also, many consumer staples stocks are rich in global presence and are likely to outperform amid falling dollar.
The Fidelity MSCI Consumer Staples Index ETF (FTSA) touched an all-time high on March 31, 2016. The fund added about 1.5% in the last five trading days (as of March 31, 2016). The fund yields about 2.52% annually (as of March 31, 2016).
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