Thu, Feb. 12, 7:21 PM
- Stocks "take the stairs up and the elevator down," and the recent performance of the utilities sector is a prime example.
- In just two weeks, the sector's fortunes have reversed and has given up nearly all of its outperformance vs. the S&P 500; the Utilities Sector ETF set an all-time intraday high on Jan. 28, coinciding with the trough in Treasury yields; rising yields since the end of January have killed the allure of a 3% dividend yield on the Utility Sector ETF.
- Even today, as the market moved broadly higher, utilities fell; AGL Resources (NYSE:GAS) and Northeast Utilities (NYSE:NU) were two of the major laggards.
- ETFs: XLU, IDU, VPU, RYU, FUTY, UPW, PUI, FXU, SDP, PSCU
Tue, Jan. 6, 12:59 PM
- While not truly bearish on the sector, Baird analysts make the case that utility stocks are fully valued after equaling or surpassing the firm's price expectations after enjoying substantial strength in 2014, and Q1 shapes up as a difficult period for utility stocks to outperform.
- Baird rates only four utility stocks as Outperform: Allete (NYSE:ALE), whose above-average EPS growth the firm believes merits a premium to the industry; CMS Energy (NYSE:CMS), with an extensive pipeline of infrastructure investments supported by a constructive regulatory environment; UIL Holdings (NYSE:UIL), a smaller utility that could have solid upside for income accounts looking for conservative stocks; and Vectren (NYSE:VVC), which sports above average growth opportunities via its very stable utility subsidiaries.
- ETFs: XLU, IDU, VPU, RYU, FUTY, UPW, FXU, SDP
Dec. 19, 2014, 6:23 PM
- The EPA released new rules for the disposal of coal ash in the first U.S. guidelines for dealing with the waste generated by burning coal, but the rules are not as stringent as environmentalists had wanted.
- The rules require power companies to close ponds containing ash slurry if they are structurally unsound or have contaminated groundwater and are not lined with materials that prevent leaks; some of the 150-plus coal ash disposal sites that have contaminated nearby groundwater may be forced to shut down.
- However, the rules do not classify coal ash as a hazardous waste, which would have added tougher handling requirements and higher costs; the EPA will leave it up to state regulators to ensure that companies meet the new requirements.
- ETFs: XLU, IDU, VPU, RYU, FUTY, UPW, PUI, FXU, SDP, PSCU
Nov. 26, 2014, 1:05 PM
- The EPA formally proposes reducing ground-level emissions limits to 65-70 ppb from their current level of 75 ppb, and says it will take comments on possibly cutting limits to 60 ppb, a standard favored by environmental and public health groups.
- The American Fuel & Petrochemical Manufacturers warns, “This regulation promises to be the most expensive in U.S. history," which it says could lead to millions of jobs lost and hundreds of billions of dollars every year in costs to U.S. businesses.
- Back in 2011, the EPA itself estimated that such a standard could cost businesses as much as $90B/year; in the new proposal, the EPA estimates costs of no more than $15B in 2025.
- ETFs: XLE, XLU, ERX, VDE, IDU, KOL, OIH, VPU, ERY, DIG, DUG, IYE, FENY, PXJ, RYU, UPW, RYE, FUTY, FXN, FXU, SDP, DDG
Nov. 24, 2014, 2:34 PM
- "While the thirst for yield is understandable, it may be leading investors to overpay and take on hidden risks," says BlackRock CIO Russ Koesterich, noting defensive sectors like utilities (NYSEARCA:XLU) and consumer staples (NYSEARCA:XLP) are priced aggressively, but carry high interest rate sensitivity. Should rates rise even modestly in 2015, these sectors (REITs too) are likely to perform poorly.
- Yield can be found elsewhere, though, he says, pointing out cyclical sectors and high yield as areas to benefit from the improving economy.
- ETFs: XLU, XLP, IDU, VPU, VDC, FXG, RYU, UPW, FUTY, RHS, FSTA, PUI, FXU, PSL, SDP, PSCC, PSCU
Nov. 13, 2014, 2:55 PM
- Chief execs of the top U.S. coal-burning utilities predict blackouts and rising power bills if they are not given more time to achieve greenhouse gas emission cuts described in the new climate agreement with China.
- A proposed timeline for cutting pollution from power plants threatens to shutter coal-fired plants before enough new generation can be built to replace lost supplies, say CEOs of Southern Co. (NYSE:SO) and American Electric Power (NYSE:AEP).
- The challenges go beyond the cost and time it would take to build new plants to replace coal units forced into retirement, Southern's Thomas Fanning and AEP's Nick Akins say; there’s not enough pipeline capacity to carry the natural gas that would be needed by all the newly built gas-fired power plants spawned by the EPA's proposals.
- Southern would have to retire more than 9K mw of coal-fueled generators and add ~5,400 mw of natural gas plants by 2020 under plans envisioned by EPA, Fanning says.
- ETFs: XLU, IDU, VPU, RYU, UPW, FUTY, PUI, FXU
Nov. 12, 2014, 6:57 PM
- Utility stocks tumbled today amid Pres. Obama's plan with China to curb greenhouse gas emissions, and will renew a push by environmental activists to deny government approval of pipeline projects such as Keystone XL (NYSE:TRP) and Alberta Clipper (NYSE:ENB) that would carry Canadian oil sands crude to U.S. refineries.
- “Achieving these goals will almost certainly require changes to the implementation of the EPA power plant regulations,” Council on Foreign Relations analyst Michael Levi says, referring to draft rules issued by the EPA in June that already have sparked pushback.
- Congressional Republicans, soon to have a majority in the Senate in addition to the House, promise to do everything possible to stop Obama’s emissions targets for power plants; the administration believes GOP gains mean Obama will not get legislative help in achieving his goals but that Republicans are unlikely to be able to stop executive orders and environmental regulations.
- ETFs: XLU, IDU, VPU, UPW, RYU, FUTY, FXU, SDP
Nov. 12, 2014, 2:14 PM
- Utility stocks, among the year’s top performing sectors in the market, are sharply lower today - a bad sign, says Weeden & Co. head researcher Michael Purves, who believes now is the time to reduce or hedge utility holdings such as the Utilities Select Sector SPDR Fund (XLU -1.9%).
- Ultra-low bond yields have made utility stock payouts look good by comparison., but valuations have been moving up; Purves says the rally has put XLU’s P/E ratio for the next 12 months at 17.4x, near a 10-year high.
- Investors ought to “start to take profits, given the run was getting long in the teeth,” Purves writes.
- The top 10 XLU holdings are all lower today: DUK -2.5%, NEE -1.7%, D -1.9%, SO -1.4%, EXC -2.8%, AEP -2%, SRE -1.7%, PPL -1.8%, PCG -1%, PEG -2.8%.
- Other ETFs: IDU, VPU, UPW, RYU, FUTY, FXU, PUI, SDP
Sep. 18, 2014, 12:53 PM
- Banks, insurers, brokerages and anything else starved for yield continue to gain following yesterday's FOMC news. Among the gainers are Bank of America (BAC +1.9%) - which breaks above $17 for the first time since April - Citigroup (C +2.7%), Wells Fargo (WFC +1.1%), PNC (PNC +1.1%), Fifth Third (FITB +1.7%), SunTrust (STI +1.2%), Schwab (SCHW +2.3%), Prudential (PRU +2.5%), and Lincoln National (LNC +2.4%).
- The XLF +1.2%, KBE +1.5%, and KRE +2%.
- Financial sector ETFs: XLF, FAS, FAZ, UYG, KRE, VFH, KBE, IYF, IAT, SEF, IYG, FXO, KBWB, FNCL, RKH, QABA, FINU, KRU, KBWR, RWW, RYF, KRS, FINZ
- Lit up bright red is the utility sector (XLU -1%), led by Southern Company (SO -1.1%), Dominion Resources (D -1.2%), Duke Energy (DUK -1.4%), and Pinnacle West (PNW -1.9%).
- Utility ETFs: XLU, IDU, VPU, UPW, RYU, FUTY, PUI, FXU, SDP, PSCU
Aug. 9, 2014, 8:25 AM
- Investors who had flocked to utility stocks now may be wondering what went wrong, after the sector was the S&P's worst performer in July.
- Fears of rising interest rates have recently sent dividend-paying stocks and high-yield junk bonds tumbling; utility stocks also have been hurt by the power sector's growing exposure to volatile natural gas prices, which have dropped ~19% since mid-June.
- Some analysts think dividend growth among utilities could slow or even stop, with power demand falling and utilities being forced to spend record amounts on replacing and upgrading aging plants and meeting stricter emission standards; Exelon (NYSE:EXC) and FirstEnergy (NYSE:FE) are big utilities that have cut dividends this year.
- Utilities that auction the power they generate - and are most exposed to moves in gas prices - have fallen the most; NRG and EXC have lost 20% and 13%, respectively, since the end of June.
- Regulated utilities such as Southern Co. (NYSE:SO) and Duke Energy (NYSE:DUK), whose rate changes are more closely controlled, haven't been hit as hard.
- ETFs: XLU, IDU, VPU, NLR, JXI, NUCL, UPW, RYU, DBU, IPU, FUTY, FXU, SDP, UTLT
Jul. 29, 2014, 12:20 PM
- Americans are plugging in more gadgets than ever, and the U.S. unemployment rate has been improving, but these trends have provided little help for the country's electric utilities.
- U.S. electricity sales look anemic for the seventh year in a row, prompting some executives to abandon their century-old assumption that electricity use tracks overall economic conditions, according to a WSJ analysis.
- The diverging trends could pose a problem for utility companies, which often need to expand sales volume yearly just to maintain their expensive equipment.
- The U.S. Energy Information Administration says it no longer foresees any sustained period in which electricity sales will keep pace with economic growth.
- ETFs: XLU, IDU, VPU, UPW, RYU, FUTY, FXU, SDP
Jul. 11, 2014, 11:10 AM
- Morningstar’s Robert Goldsborough thinks utilities are unlikely repeat their mid-2013 swoon, asserting that investors now are pricing in 4% U.S. Treasury yields, which would suggest no substantial downward moves in utilities if rates hit that level; utilitiy companies also could continue their recent outperformance if Treasury rates stabilized close to 3%.
- On the other hand, Brendan Conway of Barron's sees this as reason for caution in the long run; if the climate of falling rates since 2000 is one of the drivers of utilities’ tremendous decade-plus performance, then the end of that climate would seem to bode ill for ETFs such as VPU and XLU.
- Also: IDU, UPW, FUTY, RYU, PUI, FXU, SDP, PSCU
Jul. 8, 2014, 12:26 PM
- Leading this week's decline are a lot of the same names which led March's "momo" selloff, among them the biotechs (XBI -4.5%) and social media (SOCL -4.4%). Also familiar, small caps (IWM -1.5%) are off more than the other major indexes.
- Doing their jobs are the low volatility ETFs like SPLV (SPLV) and USMV (USMV -0.2%), as well as defensive sectors like the utilities (XLU +0.6%).
- Raymond James' typically bullish Jeffrey Saut is out with a note calling for the first decent pullback of the year - a 10-12% decline - to commence later this month or early August, and he suggests investors begin raising cash.
- Biotech ETFs: XBI, BBH, FBT, PBE
- Low-vol ETFs: SPLV, LGLV, CFA, CFO
- Utility ETFs: XLU, IDU, VPU, UPW, FUTY, RYU, FXU, PUI, SDP, PSCU
Jun. 23, 2014, 11:35 AM
- The U.S. Supreme Court places some limits on the EPA program to deal with power plant and factory emissions of gases blamed for global warming, trimming the scope of the agency's permitting effort while still allowing some emissions regulations at larger facilities such as power plants.
- The Court says the EPA lacks authority in some cases to force companies to evaluate ways to reduce carbon dioxide emissions, but the decision does not affect EPA proposals for first-time national standards for new and existing power plants, and it preserves the EPA's authority over facilities that already emit pollutants the agency regulates other than greenhouse gases.
- Justice Scalia, writing for the court, says the ruling will allow the EPA to regulate 83% of all greenhouse gases emitted from plants nationwide vs. the 86% the agency had sought.
- ETFs: UNG, XLE, XLU, DGAZ, UGAZ, ERX, KOL, IDU, VDE, OIH, BOIL, GAZ, ERY, VPU, FCG, DIG, GASL, DUG, KOLD, IYE, UNL, GASX, NAGS, PXJ, FENY, RYE, UPW, RYU, FUTY, FXN, DCNG, FXU, DDG, SDP
Jun. 18, 2014, 6:41 PM
- Investors plowed $1.2B into U.S. utilities sector ETFs during the past five days, signaling skepticism that an economic recovery is strong enough to eventually lift interest rates.
- Military conquests in Iraq by Islamic insurgents over the past week probably fueled the trend, and the Fed said today that interest rates will stay low for a considerable period even amid economic growth after it stops buying back bonds; utility stocks responded, with the S&P 500 Utilities Index jumping 2.2% in its biggest one-day gain since last September.
- The FXG and FXU ETFs enjoyed record cash inflows June 16, according to data compiled by Bloomberg; State Street’s Utilities Select Sector SPDR (XLU) was the best-performing sector ETF in the past week, attracting $468M.
- ETFs: IDU, VPU, UPW, RYU, FUTY, PUI, FXU, SDP
Jun. 3, 2014, 7:02 PM
- Pres. Obama’s plan to cut power plants’ carbon dioxide emissions places a widely differing burden on different states; EPA figures show targets for 2030 range from a 72% reduction in measured emissions rates to just 11%.
- As well as having the highest emissions rate goal, North Dakota is being asked to make the smallest cut from 2012 levels (11%); Washington state has the lowest goal and is being asked to make the steepest reduction (72%).
- Though Washington's governor supports the climate plan, heavy polluters, such as Louisiana and Texas, promise to fight the rules; the top U.S. emitter of greenhouse gases, Texas must cut ~100M metric tons of carbon dioxide from its annual emissions, more than the next three states combined.
- The EPA says it is trying to be flexible, but such an approach could leave it vulnerable to legal challenges.
- ETFs: XLE, XLU, TAN, ERX, KOL, IDU, VDE, OIH, ERY, FCG, VPU, DIG, KWT, GASL, DUG, IYE, GASX, PXJ, UPW, FENY, RYE, RYU, FUTY, FXN, FXU, DDG, SDP
FXU vs. ETF Alternatives
The First Trust Utilities AlphaDEX® Fund is an exchange-traded fund. The investment objective of the Fund is to seek investment results that correspond generally to the price and yield, before fees and expenses, of an equity index called the StrataQuant® Utilities Index.
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