Tags: investors | Treasury | utilities | yield

Power Surge Fizzles: Investors Flee Utilities

By    |   Monday, 03 June 2013 01:12 PM

Utility stocks, which have sizzled for the past four years, are now losing juice, as investors seek more cyclical stocks and Treasury yields rise, The Wall Street Journal reports.

The Utilities Select Sector SPDR exchange-traded fund (ETF), the largest ETF made up of utility shares, sank 9.1 percent in May, its worst monthly performance in more than four years.

Even though the economy expanded only 2.4 percent in the first quarter — and analysts expect even slimmer growth ahead — investors are enthusiastic enough to shift to growth sectors like technology and manufacturing.

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

Previously, investors had turned to utilities for their safety and bounteous yields. The utilities ETF mentioned above now yields 3.5 percent.

"We had this rush of yield-seekers over the past year, and that translated into flows into utilities, telecommunications stocks and consumer staples," David Lutz, head of ETF trading strategy at Stifel Nicolaus, tells The Journal.

"Now we're seeing a rotation away from the sectors where these yield-seekers had favored."

Some investors also figure that with Treasury yields rising, they can gain even greater safety through these bonds without sacrificing much yield. The 30-year Treasury yield stood at 3.26 percent Monday.

"There is a correlation between interest rates and utilities since they are fixed-income surrogates," Scott Davis, portfolio manager for Columbia Management's $8.6 billion dividend income fund, tells The Journal. "Historically, people buy them for the yield, so we'd expect to see cost adjustments as bonds become more competitive again."

One problem is that "some utilities have lacked discipline in building new capacity," according to Barron's.

"That flood of power, priced with cheaper natural gas, means power price weakness. That’s good for the consumer, but is having a 'crushing impact' on some operators," Credit Suisse analysts write.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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Utility stocks, which have sizzled for the past four years, are now losing juice, as investors seek more cyclical stocks and Treasury yields rise, The Wall Street Journal reports.
investors,Treasury,utilities,yield
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2013-12-03
Monday, 03 June 2013 01:12 PM
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