A Pleasant Surprise Among Leveraged ETFs

The utilities sector is rarely equated with excitement, but give the Utilities Select Sector Index some credit. That widely followed benchmark of utilities stocks has been soaring since the Federal Reserve raised interest rates last month.

The Utilities Select Sector Index deserves some more credit, too, because it is up more than 3 percent this year, a solid showing for a sector believed to be highly sensitive to interest rate changes.

What Happened

Traders looking to add some spice to utilities trades do not have many options in the world of leveraged exchange traded funds, but there is the Direxion Daily Utilities Bull 3X Shares UTSL. UTSL looks to deliver triple the daily returns of the Utilities Select Sector Index.

With a gain of about two-thirds of a percent Tuesday, UTSL is up nearly 9 percent on a month-to-date basis, making it one of the best-performing bullish leveraged funds in Direxion's stable since the start of October.

Why It's Important

Third-quarter earnings season here and while the utilities sector is one of the smallest sector weights in the S&P 500, this could be the ideal time for sophisticated traders to put UTSL to work.

“Total Q3 earnings for the S&P 500 Index are expected to be up 17.6% from the same period last year on +7.3% higher revenues. That would be the 6th time in the last 7 quarters of double-digit earnings growth,” according to Direxion.

The Oct. 22 through Nov. 2 period is the time to consider UTSL for earnings-related trades. During those two weeks, nearly 83 percent of the components in the Utilities Select Sector Index deliver third-quarter results.

What's Next

Heading into earnings season, analysts are not particularly enthusiastic about the utilities sector. Just 44 percent of S&P 500 utilities stocks carry the equivalent of a Buy rating while 48 percent are rated hold, according to FactSet data.

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