In considering which sectors of the economy I think are likely to outperform coming out of this recession, utilities certainly remain on the top of my list right now.
Coming into this recession, I've been a huge bull on utilities in general, due to the defensive nature of the sector as well as the reality that “lower-for-longer” interest rates and fixed-income yield serve this sector particularly well.
I don't see any reason why interest rate policy will deviate from a ZIRP (zero interest rate policy) stance for the next decade at least, so utilities are great choice on that factor alone. The defensive nature of utilities, however, is a factor I don't think has enough discussion, and it is of paramount performance right now as volatility remains seriously elevated.
One Exchange Traded Fund (ETF) which tracks utilities broadly and provides excellent yield from high quality regulated companies is the iShares Capped Utility ETF (TSX:XUT). This ETF is a great way to diversify one’s portfolio should one be light on utilities, and is a great complement to conventional bottom up investing approaches as well, for those who pick their own stocks generally.
There are other ETFs tracking the utilities sector with covered call overlays. However, in this current environment, which will hopefully provide us with something in the way of recovery sometime in the next few quarters, buying an ETF like XUT provides full exposure to the upside this sector has offer, making this ETF my top pick for investors looking for utilities exposure.
Invest wisely, my friends.
