According to the U.S. Bureau of Labor Statistics, inflation surged 8.5% year-over-year in July, lower than the consensus estimates. The stock market rejoiced on the news, with the S&P 500 gaining 2.1% in the last trading session, its highest since May 2022, while the tech-heavy Nasdaq Composite rose 2.9% to 12,854.80, marking its best close since late April.
Consequently, the probability of the Fed hiking rates by 75 bps in September slid to 37%, while the possibility of a 50 bps hike climbed to 63%.
Aneta Markowska, the chief economist at Jefferies, believes that cooling prices could substantially loosen the Fed’s monetary tightness and improve overall macroeconomic conditions. “Things are moving in the right direction. This is the most encouraging report we’ve had in quite some time,” she said regarding the latest CPI data.
Utilities Select Sector SPDR Fund (XLU)
XLU is a popular choice for investors seeking exposure to the U.S. utility sector, renowned for relatively low volatility and relatively high distribution yields. It includes securities of companies from the electric utilities, water utilities, multi-utilities, independent power, renewable electricity producers, and gas utilities industry.
With $16.93 billion in assets under management (AUM), XLU’s top holdings include NextEra Energy, Inc. (NEE), with a 16.46% weighting in the fund, followed by Duke Energy Corporation (DUK) at 8.00%, and Southern Company (SO) at 7.82%. It currently has 30 holdings in total. Over the past year, the ETF’s net inflows were $2.17 billion. In addition, its 0.10% expense ratio compares favorably to the 0.42% category average.
XLU pays a $2.03 annual dividend, which yields 2.70% at the prevailing share price. Its four-year average dividend yield stands at 3.07%. Its dividends have increased at a 3.1% CAGR over the past three years and 3.6% over the past five years. Over the past year, XLU has gained 11.5%.
It is no surprise that XLU has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system.
Vanguard Utilities Index Fund (VPU)
VPU offers exposure to the domestic utility sector, historically exhibiting low volatility with frequent attractive distribution yield. It is ideal for investors looking to establish a shorter-term tactical tilt rather than long-term, buy and hold investors.
The fund has $5.99 billion in AUM. Its top holdings include NEE with a 13.37% weighting, DUK with 7.25%, and SO with 6.65%. In addition, it has 67 holdings in total.
Its net inflows came in at $41.89 million over the past month. Its 0.10% expense ratio compares favorably to the 0.42% category average.
VPU pays a $4.35 annual dividend, which yields 2.66% at the prevailing share price. Its average four-year dividend yield stands at 3.00%. In addition, its dividends have increased at a 3.9% CAGR over the past three years and 3.5% over the past five years. Over the past year, VPU has gained 10.9%.
VPU’s POWR Ratings reflect solid prospects. It has an overall A rating, equating to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Trade, Buy & Hold, and Peer. VPU is ranked #2 in the Utility ETFs group. Click here to see all of VPU’s ratings.
SPDR S&P Dividend ETF (SDY)
SDY is associated with the S&P High Yield Dividend Aristocrats Index, which offers exposure to dividend-paying large-cap companies exhibiting value characteristics within the U.S. equity market.
SDY has $22.10 billion in AUM. Its top holdings include Franklin Resources, Inc. (BEN) with a 1.86% weighting, Leggett & Platt, Incorporated (LEG) at 1.80%, and Walgreens Boots Alliance, Inc. (WBA) with 1.75%. In addition, it has 121 holdings in total. Its net inflows came in at…
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