Quick. Name the worst-performing of the nine Selector Sector
SPDRs funds issued by State Street Global Advisors this week.
Following an election result that was largely viewed as
unfavorable to the energy space, a logical guess would be the
Energy Select Sector SPDR (NYSE:
XLE
). On the same basis, the Financial Services Select Sector SPDR
(NYSE:
XLF
) makes for a fine guess as well.
Some might even say the answer is the Technology Select Sector
SPDR (NYSE:
XLK
) due to continued weakness in shares of Apple (NASDAQ:
AAPL
). All would be wrong. By far the worst-performing of the nine
sector SPDRs this week is the Utilities Select Sector SPDR (NYSE:
XLU
).
XLU, which is home to nearly $5.8 billion in assets under
management, has been prized by investors for a decent dividend
yield (currently almost 3.8 percent) and its low-beta ways that
have led the fund to be the least correlated of the sector SPDRs
to the S&P 500 over the past several years.
XLU has not been too intimately correlated to the benchmark
index this week because the utilities fund has plunged almost 4.1
percent compared to a loss of 2.2 percent for the SPDR S&P
500 (NYSE:
SPY
).
XLU was trading slightly above $37 earlier this week, but with
less than two hours to go in Friday's session, the ETF appears
unlikely to close above $35. One reason for the decline could be
the fact that a lofty valuation is finally coming home to
roost.
In July, Benzinga reported that XLU, other utilities
ETFs
and the underlying components in those funds
were trading at the high end of their historical valuations. The
argument at that time was those valuations were forced higher by
investors chasing yield, making ETFs such as XLU vulnerable to
declines.
Last month, it was noted
U.S. utilities were also richly valued relative
to foreign equivalents
.
XLU currently sports a price-to-earnings ratio of 14.46 and a
price-to-book ratio of 1.46, implying the fund still resides near
the high end of its historical valuation. Adding to the bear case
for XLU are the facts that the ETF is now almost nine percent
removed from its 52-week high and trading below its 200-day
moving average.
An alternative for investors still craving utilities exposure
could be the WisdomTree Global ex-US Utilities Fund (NYSE:
DBU
). That ETF is not as frothy on a valuation basis, offers
exposure to both developed and developing markets and features a
30-day SEC yield that is 85 basis points higher than XLU's. This
week, DBU has outperformed XLU by about 160 basis points. DBU is
also the better performer over the past 30 and 90 days.
For more on ETFs, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.