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Home»Money»Utilities are now hottest trade of 2024, and Bank of America says keep buying instead of tech
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Utilities are now hottest trade of 2024, and Bank of America says keep buying instead of tech

By LucasFebruary 13, 20263 Mins Read
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Utilities — not tech — are now the hottest trade on Wall Street, according to Bank of America. Savita Subramanian, equity and quant strategist at Bank of America, on Monday upgraded the sector to overweight from market weight, saying investors should buy utilities — instead of tech — as they can outperform in a choppy market as the Federal Reserve starts to lower interest rates. “On the heels of softer employment data, our economists’ revised outlook has terminal rates slated to reach 3.25% by 2025 – the dividend yield of most Utes and [real estate] companies are more attractive given their inherent inflation protection,” she wrote. XLU YTD mountain XLU The utilities sector is actually leading the S & P 500, up more than 19% in 2024 even as much of the attention this year has gone to the high-flying megacap tech stocks due to the promise of artificial intelligence. Subramanian sees the outperformance continuing. She anticipates higher volatility over the next several years — not just the next several months — will increase the importance of quality and income stocks over growth names. “Gains in the 2010s were mostly from growthy stocks enjoying multiple expansion amid low to negative real rates,” she wrote. “Going forward, income should contribute a larger share of total return– especially since our valuation framework suggests paltry price returns – low single digits – over the next decade. (In 2010, valuations predicted 10%+ price returns p.a.).” “Quality and income are the new growth and P/E expansion,” she added. “Note that the total return of S & P 500 Utilities (the ‘tortoise’) has been in line with Nasdaq’s (the “hare’) over the long term.” Here are some ways for investors to play it: The Utilities Select Sector SPDR Fund (XLU), a market cap-weighted fund with roughly $18 billion in assets, has a 22% total return in 2024. The fund charges 0.09% in fees. Vanguard Utilities ETF (VPU) , a $6.4 billion market cap-weighted fund, has a total return of 22%. The fund has an expense ratio of 0.1%. The iShares U.S. Utilities ETF (IDU) , with $1.4 billion in assets, has a 22% total return. The fund charges 0.4% in fees. Fidelity MSCI Utilities Index ETF (FUTY) , with $1.4 billion in assets, has a total return of 22%. The fund charges 0.084% in fees. Invesco S & P 500 Equal Weight Utilities ETF (RSPU) , an equal-weighted fund with just $317 million in assets, has a roughly 20% total return in 2024. Its expense ratio comes in at 0.4%. Separately, as for the tech highfliers, Subramanian is a lot less bullish. Information technology is the worst-performing S & P 500 sector this quarter, down about 7%, even as it’s higher this year by 18%. But the strategist said she is not buying the dip. “We remain underweight Information Technology despite arguments that it has gotten so beaten up,” she said. “The sector trades at record EV/Sales, is cyclical not secular and with Standard & Poor’s new index-cap rules expected to be implemented, Tech’s concentration risk introduces the risk of passive selling pressuring mega-cap names.” — CNBC’s Jesse Pound contributed to this report.



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