Need Stability in Your Stocks? Consider the Utilities Industry

While leveraged funds are typically reserved for experienced investors, utilities might be ideal for intermediate traders looking to dabble in 3x ETFs to maximize gains. Utility equities can provide a level of stability that other sectors may not experience, particularly when a market downturn takes place.

“Utility stocks may not be known for huge gains, but they seldom see big losses,” an Investorplace article said. “They lack the volatility of other stocks. Even in a bad economy, people still need utilities; unlike companies that depend on discretionary consumer spending, which may see their revenue plummet.”

“Utilities are also relatively safe from competition,” the article said further. “With the large infrastructure investment required, the cost of entry for newcomers is prohibitively high. Utilities may also be protected from competitors by government regulations.”

As for the fund, UTSL seeks daily investment results, before fees and expenses, of 300% of the daily performance of the Utilities Select Sector Index. The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements, securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

The energy sector has been one of the big winners in 2021, largely powered by a rebound in oil prices. In addition, renewable energy sources are seeing higher demand, which is helping UTSL’s top holding (about 17% of the index UTSL tracks), NextEra Energy.

The company primarily focuses on wind and solar energy, which is getting a boost from the federal government as the U.S. continues to work towards reducing its carbon footprint. Expect renewable sources of energy to continue become a larger piece of the utilities pie.

“In 2020, large-scale solar and wind power generated about 11% of the electricity in the United States, and that share is expected to keep growing,” a Pew Research Center article noted. “The Biden administration just approved the country’s first major offshore wind farm and intends to invest in additional offshore wind projects. And construction costs for solar and wind power projects fell dramatically from 2013 to 2018, helping to boost the viability of increased reliance on these sources.”

For more news and information, visit the Leveraged & Inverse Channel.