The relatively high yielding utility sector (SPDR Trust Utilities XLU) is down 2.1% over the past six months versus the SPX up 8.9%. Utilities are often owned for their high yields rather than principal growth. With interest rates jumping significantly higher in May and June, the utility sector suffered along with the fixed income sector.
There has been a consistent trend for the past week of call buying in XLU. The calls have been concentrated on the 38 strike expiring in October. We have seen risk reversal trades whereby October 36 puts were sold to buy October 38 calls.
Buying XLU may be partly based on Janet Yellen being the lead candidate to take over as the new Fed Chairman. She is perceived as being dovish on tapering meaning interest rates may not rise as fast as expected. If you are looking for a “safety” equity play for the remainder of the year, XLU may offer a nice blend of dividend and value.