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Negatiger1986
LSU Fan
Inside the Leather
Member since Sep 2010
302 posts
 Online 

Why are Utilities down this week?
Vanguard Utilities ETF (VPU) has been a great performer this year. It is down about 3.5% this week and I was thinking about adding to my position. A quick google search shows some negative pub around Pacific G&E, but that's not a component of VPU. Natural gas prices are up a little but the curve is generally unchanged. Other defensive sectors (Healthcare, Communications) are up.

I'd like to buy on the dip but not without understanding what is driving it. Any thoughts?


Negatiger1986
LSU Fan
Inside the Leather
Member since Sep 2010
302 posts
 Online 

re: Why are Utilities down this week?
Looks like NextEra (largest holding in the fund at ~10%) is the bad actor. They released earnings earlier this week. Still not seeing any news to explain today's drop off.


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LSURussian
LSU Fan
9 acres of paradise in Baton Rouge
Member since Feb 2005
117243 posts

re: Why are Utilities down this week?
Interest rates have shot up over the potential China tariffs deal. Utilities are very interest rate sensitive.


UpstairsComputer
LSU Fan
Prairieville
Member since Jan 2017
750 posts

re: Why are Utilities down this week?
REIT's taking a bath too, same deal.


Negatiger1986
LSU Fan
Inside the Leather
Member since Sep 2010
302 posts
 Online 

re: Why are Utilities down this week?
Thanks. That makes sense to me - basically they are a yield vehicle that trades up and down with interest rates.

How should I think about interest rates "rising" today vs the fed reducing rates over the last few months?


LSURussian
LSU Fan
9 acres of paradise in Baton Rouge
Member since Feb 2005
117243 posts

re: Why are Utilities down this week?
quote:

How should I think about interest rates "rising" today vs the fed reducing rates over the last few months?
The Fed’s focus is on overnight rates in the fed funds market.

Utilities usually borrow longer term in order to match their long-term assets (plant, equipment and transmission lines) to longer term debt. Plus the only way utilities can improve their ROE to competitive levels is to leverage its balance sheet.

Longer term rates are what have gone up significantly over the last two weeks.


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