Research > ETFs > ETF / ETP Commentary > 

Being Careful With High-Yield Sectors

With Treasury yields tumbling and the Federal Reserve poised to continue lowering interest rates, investors are flocking to high-yield sectors and the related ETFs are surging. For example, the Utilities Select Sector SPDR (XLU A) and the Real Estate Select Sector SPDR Fund (XLRE ) are up an average of 24% year-to-date.XLRE’s dividend yield of 3.19% is more than double that of 10-year Treasuries while XLU, the largest utilities ETF, yields nearly 3%.Utilities are typically more stable stocks since the demand for their services, notably electricity and gas, is steady from both consumers and businesses. Moreover, in a lower-for-longer yield environment, utilities come with more attractive above-average dividends.“Speaking of debt, most sectors are yielding higher than 10-year Treasuries. This is juxtaposed with yields of rate-sensitive sectors, such as Utilities and Real Estate, which are near their bottom decile of the past 15 years,” said State Street in a recent note.Enjoy A Cautious ToneReal estate investors enjoy attractive dividend yield-generation, which provides an alternative to bonds as a source of income. The sector offers yields that exceed sovereign and corporate investment bonds. Unlike bond coupons, real estate dividends can grow over time, which is invaluable in periods of high growth and inflationary environments. Additionally, due to real estate’s long-term leases, they provide a more reliable source of dividends than other equities.“All of this points to stocks yielding more than bonds, as interest rates have moved so low on traditional treasuries,” notes State Street. “Assessing Utilities and Real Estate, we also see that, because price performance has been so strong recently for investors searching for any yield greater than 2.5%, the current yields sit in the bottom 10th percentile that it has been in the past 15 years.”Related: Depressed Bond Yields Help These Sector ETFs ShineBottom line: investors embracing the likes of XLU and XLRE need to hope Treasury yields don’t suddenly spike higher.“Investors are searching for yield, and that has been driving some of the price-performance in very specific sectors. With that as the case, if the rate environment changes the price performance on some of these sectors could be impacted,” according to State Street.This article originally appeared on ETFTrends.com

Performance data shown is past performance and is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. Yield and return will vary, therefore you have a gain or loss when you sell your shares. For standard quarterly performance, go to the fund's Snapshot page by clicking on the ETF/ETP's symbol.

ETFs may trade at a premium or discount to their NAV and are subject to the market fluctuations of their underlying investments.

For iShares ETFs, Fidelity receives compensation from the ETF sponsor and/or its affiliates in connection with an exclusive long-term marketing program that includes promotion of iShares ETFs and inclusion of iShares funds in certain FBS platforms and investment programs. Please note, this security will not be marginable for 30 days from the settlement date, at which time it will automatically become eligible for margin collateral. Additional information about the sources, amounts, and terms of compensation can be found in the ETF's prospectus and related documents. Fidelity may add or waive commissions on ETFs without prior notice. BlackRock and iShares are registered trademarks of BlackRock, Inc. and its affiliates.

FBS receives compensation from the fund's advisor or its affiliates in connection with a marketing program that includes the promotion of this security and other ETFs to customers ("Marketing Program"). The Marketing Program creates incentives for FBS to encourage the purchase of certain ETFs. Additional information about the sources, amounts, and terms of compensation is in the ETF's prospectus and related documents. Please note that this security will not be marginable for 30 days from the settlement date, at which time it will automatically become eligible for margin collateral.

News, commentary (including "Related Symbols") and events are from third-party sources unaffiliated with Fidelity. Fidelity does not endorse or adopt their content. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use.

Any data, charts and other information provided on this page are intended to help self-directed investors evaluate exchange traded products (ETPs), including, but limited to exchange traded funds (ETFs) and exchange traded notes (ETNs). Criteria and inputs entered, including the choice to make ETP comparisons, are at the sole discretion of the user and are solely for the convenience of the user. Analyst opinions, ratings and reports are provided by third-parties unaffiliated with Fidelity. All information supplied or obtained from this page is for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell a particular security, or a recommendation or endorsement by Fidelity of any security or investment strategy. Fidelity does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating ETPs. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use. Determine which securities are right for you based on your investment objectives, risk tolerance, financial situation and other individual factors and re-evaluate them on a periodic basis.

Before investing in any exchange traded product, you should consider its investment objective, risks, charges and expenses. Contact Fidelity for a prospectus, offering circular or, if available, a summary prospectus containing this information. Read it carefully.