Under The Hood: Some Value Left In Utilities

By now, everyone and his sister knows that 2011 will go down as the year of the “risk off” trade. Of course that means that investors that were wise enough to turn their lights on to boring utilities stocks and ETFs this year have been handsomely rewarded. While the SPDR S&P 500 SPY bounce back and forth between small year-to-date gains and losses, the SPDR Select Sector Utility XLU is up almost 12% year-to-date. With a yield of almost 4%, XLU has been flirting with all-time highs this week and the ETF can certainly be characterized as “overbought” at this point. Question is: Is there value left in utilities? Sure, but you need to know where to look and that means developing a global perspective with the iShares S&P Global Utilities ETF JXI. The iShares S&P Global Utilities ETF currently yields almost 4.3% and that's better than the 3.8% offered by XLU, but believe it or nor, JXI is actually down 5% year-to-date. It's easy to see why and it underscores the fact that the iShares S&P Global Utilities ETF might just be an example of the proverbial baby being thrown out with proverbial bathwater. Ten countries are featured in JXI and more than 48% of the ETF's weight is allocated to U.S. utilities, but another roughly 21% is allocated to Germany, France, Italy and Spain. Overall, JXI is home to 76 stocks, nearly $240 million in assets under management and an expense ratio of 0.48%. The ETF tracks the S&P Global 1200 Utilities Sector Index. Not only does JXI beat XLU in terms of yield, it beats the Vanguard Utilities ETF VPU as well. In other words, there are some high points to JXI when you get past the Euro Zone exposure. So what investors are left with regarding JXI at this point is a double-edged sword: There is the value of a decent yield with an ETF that's offering some value in a sector where there's little value to be had right now.. However, there is that pesky Europe problem that seemingly won't go away. Maybe the chart will help. Getting in around $42 on JXI should means you can stay in on the downside to $39. Adding in on a move above resistance at $44 would be advisable as well. From there, the $47-$49 area is a possibility for patient investors. Bull case: Investors realize JXI is a utilities play, not a Europe play and the risk off trade finds its way to this ETF. Bear case: Investors focus on that 21% Euro Zone exposure, Europe's problems worsen and JXI tumbles below support at $39.