Opinions
Daniel Straus
BMO Equal Weight Utilities Index ETF
ZUT-T
BUY
Aug 21, 2024
Stock price when the opinion was issued
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Utilities are good for yield seekers. Could look at ZWU with broader based with utilities + other dividend players as well as some US exposure. Overall, good for income.
Return of 38% over 5 years, whereas ZWU has a total return of only 13%. With covered calls like ZWU, you miss out on upside over time. The underlying securities of a covered call strategy often perform a bit better. So if you don't need the income, start looking at the underlying securities.
If you're interested in the utilities sector, this is a good one to look at. All utilities had a big selloff when rates were rising in 2022 and 2023. Then, as interest rates went nowhere, so did the stocks, just collecting the dividend. BOC has cut twice, Fed is probably going to start. Utilities have come up off lows, but haven't started to move up yet.
There's certainly that potential there for more demand for power generation as we get into AI. It's steady growth, but a mature sector. Catalysts could be AI or EVs really taking off. Influenced quite a bit by swings in interest rates.
You need to anticipate which direction yields will move, because the market has already priced in interest rate cuts. If rates don't fall, an interest-rates sensitive like ZWU will perform at or underperform your expectations; this has already rallied 10% in the past month. ZWU pays you more income given its covered call overlay vs. ZUT which doesn't give you extra income.
You need to anticipate which direction yields will move, because the market has already priced in interest rate cuts. If rates don't fall, an interest-rates sensitive like ZWU will perform at or underperform your expectations; this has already rallied 10% in the past month. ZWU pays you more income given its covered call overlay vs. ZUT which doesn't give you extra income.
A non-covered call alternative to ZWT. Over the long term, outperforms the covered call on a total return basis. The better growth alternative.
For covered call strategies, always consider the yield and the source of that yield. With ZWT, you'll forego some upside if utilities markets are strong, but you get more yield on an ongoing basis. Best for ongoing yield to pay your bills.
Given the kind of market we're heading into, some strategists feel pretty good about utilities. Utilities are considered defensive, as people need to pay them whether the economy is good or bad; tend to have stable dividends.