Bearish Utilities Bets Bring Non-Traditional ETFs Into Focus

March 7, 2017 11:47am NYSE:SDP

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The Utilities sector regains our focus again today, as we had previously mentioned the presence of downside put buyers in the largest Utility sector oriented fund XLU (SPDR Utilities Select Sector, Expense Ratio 0.15%, $6.8 billion in AUM) which involved the March 49 strikes prior to the end February.


Since then, we have now seen activity in the April 48 puts, as XLU has retreated only slightly in the first few trading days of March, but the theme in the options space is indeed consistent.

In spite of its nice rally since early February, where Utilities are outperforming the broad based S&P 500 by more than 120 basis points in the trailing one month period, the fund itself has seen some position trimming with more than $740 million vacating YTD via redemptions.

As we previously mentioned in this recap, given the presence of put buyers plus redemptions in the underlying fund into the recent pop in the sector, it makes plenty of sense to monitor the bear levered SDP (ProShares UltraShort Utilities, Expense Ratio 0.95%, $8.9 million in AUM), as it may catch attention in the event of a slide in Utilities.

The Utility sector itself is a timely mention today because in ETF land, it has expanded significantly away from simply market-capitalization weighted sector funds, with new entries that likely fly under the radar but are worth mentioning and investigating from a variety of issuers. Such lesser known products include the $16 million JHMU (John Hancock Multifactor Utilities, Expense Ratio 0.50%), which debuted nearly a year ago in late March of last year, and UTES (Reaves Utilities, Expense Ratio 0.95%, $14 million in AUM) which first publicly traded in late September of 2015.

Additionally, two even smaller “Specialty” Utility sector funds that are not well covered in the ETF landscape are UTLF (iShares Edge Multifactor Utilities, Expense Ratio 0.35%, $2.7 million in AUM) and XU (Elkhorn S&P MidCap Utilities Portfolio, Expense Ratio 0.29%), both of which started trading in 2016, in May and December of last year respectively.

Clearly, ETF issuers seem to agree that the investment public has an appetite for “niche” Utility funds that are not of the same feather as some of the more tenured “market-cap weighted broad index” fashion, but in some cases as evidenced above, take a different approach at the index composition, not limited to a “multi-factor” methodology.

The ProShares UltraShort Utilities ETF (NYSE:SDP) was trading at $28.87 per share on Tuesday morning, down $0.08 (-0.28%). Year-to-date, SDP has declined -10.78%, versus a 6.17% rise in the benchmark S&P 500 index during the same period.

SDP currently has an ETF Daily News SMART Grade of D (Sell), and is ranked #16 of 53 ETFs in the Inverse Equities ETFs category.

About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.


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