XLU has roughly doubled the performance of the broad based S&P 500 in the trailing one month period, but going back six months trailing, it has under-performed considerably. While XLU is trading at its highest level in months this morning, it seems that some may be looking for a potential pullback in the sector over the next several weeks given some trading that we have seen in the March 49 puts, which expire on 3/17/17.
XLU has seen some position trimming year-to-date, with about $565 million leaving the fund via redemption flows, yet the fund is still the largest “Utilities Equity” fund in the U.S. listed landscape by a wide margin, ahead of VPU (Vanguard Utilities, Expense Ratio 0.12%, $2.2 billion in AUM) which has also seen some profit taking year-to-date, with approximately $112 million vacating the fund. We often see the likes of XLU, VPU, IDU (iShares U.S. Utilities, Expense Ratio 0.43%) and to some extent FXU (First Trust Utilities AlphaDEX, Expense Ratio 0.70%, $1.4 billion in AUM) involved in first of the month ETF tactical model changes in the marketplace, so given the recent appetite for downside puts in XLU, it makes this sector even all the more interesting to watch in the very short-term.
Bears who may believe that the sector is potentially overextended at current levels, given its recent leg up, may look to two rather small and under-covered ETFs that are structured as inverse trading strategies. SDP (ProShares UltraShort Utilities, Expense Ratio 0.95%, $10.1 million in AUM) does not trade a ton of volume regularly, but it could potentially be in play should any weakness occur in Utilities between now and March expiration.
UTLZ (Direxion Daily Utilities Bear 1X, Expense Ratio 0.56%) is a freshly launched fund with not much trading action to speak of (it debuted 1/5/17), but perhaps timely given what we are seeing in the Utilities sector here recently from a trading standpoint.
Notably, top holdings of XLU are: 1) NEE (9.35%), 2) DUK (8.07%), 3) SO (7.83%), 4) D (7.73%), and 5) EXC (5.36%).
The Vanguard Utilities ETF (NYSE:VPU) was trading at $113.28 per share on Tuesday morning, up $0.67 (+0.59%). Year-to-date, VPU has gained 5.86%, versus a 5.98% rise in the benchmark S&P 500 index during the same period.
Paul 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.