Traders Have Been Bottom Fishing In This Leveraged ETF

The utilities sector ended 2017 in a tailspin, and the swoon is continuing to start 2018. The Utilities Select Sector Index is off nearly 5 percent to start the year and resides 12.5 percent below its 52-week high, putting it well into correction territory.

Some ambitious, risk-tolerant traders are bottom-fishing utilities with the Direxion Daily Utilities Bull 3X Shares UTSL. The Direxion Daily Utilities Bull 3X Shares is the lone triple-leveraged utilities exchange traded ETF on the market after debuting in May 2017. UTSL attempts to deliver triple the daily returns of the Utilities Select Sector Index.

Top holdings in the fund are NextEra Energy Inc. NEE (11.01 percent), Duke Energy Corp DUK (8.14 percent), Dominion Energy Inc D (7.82 percent), and Southern Co SO (7.23 percent). Overall the fund is 60 percent exposed to electric utilities companies, 34 percent exposed to multi-utilities, 2 percent exposed to water utilities and 2 percent exposed to independent and renewable utilities. 

Slack Performance

The utilities sector is often viewed as defensive, docile and lower beta compared to other groups, but that is not an invitation to treat UTSL differently than other leveraged ETFs. Like any other leveraged ETF, UTSL is built to be a short-term trade, not a buy-and-hold investment.

UTSL's recent performance reminds investors of the dangers of holding leveraged ETFs for extended periods. The ETF is already down 15 percent this year, making it one of Direxion's worst-performing leveraged bullish funds to start 2018. Still, the potential lingers for UTSL to be a solid short-term rebound idea.

“Despite the overall earnings decline, 10 sectors are reporting or are predicted to report year-over-year earnings growth,” said FactSet Research. “Four of these sectors are reporting or are expected to report double-digit earnings growth: Energy, Materials, Information Technology, and Utilities.” 

Traders Are Nibbling

Data suggests traders have recently been flocking to UTSL. On Monday, volume in the ETF was once again well above double the daily average. That was after a five-day run in which UTSL's turnover was 170.5 percent above its trailing 20-day average, according to Direxion data. 

Over the past month, traders have been adding an average of almost $432,000 per day to UTSL, good for one of the better totals among Direxion's leveraged sector ETFs.

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