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ETF Specialist

This ETF Offers a Bastion of Stability in an Uncertain Market

Despite the limited upside, utilities are often looked to for stability during periods of heightened market uncertainty.

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The level of uncertainty that has proved itself pervasive in today's market has yet to abate. The end result in the minds of many has been to seek out relative stability. While some of the more niche asset classes like master limited partnerships have garnered interest on this basis, it is the utilities sector that is consistently turned to as a bastion of safety within the equity markets. The perception does not miss the mark. The utilities space has posted a three-year standard deviation measure of roughly 10, whereas the S&P 500 posted a much higher metric of nearly 15 over the same period.

The most contentious issue surrounding the utilities space today is the persistently low price of natural gas. Persistence of low prices is likely to cut into the margins of the unregulated non-natural gas (that is, coal-powered) utilities. That said, within the context of a well-diversified utilities investment, unregulated natural gas utilities will likely see increases in volume that offset the effect to some degree. Here we discuss the industry and the mechanics of a broad utilities investment in greater detail and the products best suited to provide exposure.

Abraham S.H. Bailin does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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