3 Sector ETFs To Benefit If Rates Drop
Zacks Investment Research | May 26, 2015 12:26AM ET
The markets have been performing very well lately, occasionally hitting all-time highs. The buoyancy was triggered off by the hope of a delayed Fed rate hike amid a slew of sub-par U.S. economic data. In fact, the benchmark 10-year government debt fell to a yield of 2.19% on May 21, 2015 registering a decline of 9 basis points from this month’s high of 2.28% (on May 12, 2015).
Though the overall U.S. market has gathered steam, we might see some specific winners in the days to come on declining rates and the possibility of a late Fed rate hike. These winners mainly hail from the rate sensitive areas of the market and this set of companies look to benefit from lower interest rates. Notably, these spaces are strong dividend plays and quench investors’ thirst for current income in a low rate environment of developed economies.
Below, we have highlighted three sector ETFs that could be the biggest gainers from the falling rate scenario.
Utility
The sector is high on safety and dividend payout. The operating atmosphere is in favor of the utility sector as the economy is picking up momentum, albeit slowly. As the utility sector requires huge infrastructure leading to an immense debt burden and the consequent interest obligation, the companies tend to perform well when rates are low in the economy.
Utilities Select Sector SPDR ETF (NYSE:XLU) is by far the most popular choice in the utilities space. The fund was up 3.3% in the last one week (as of May 21, 2015). XLU has a dividend yield of 3.43% (as of the same date).
Mortgage REITs
Original post
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.