The consumer staples and utilities sectors have long been the favored destinations of defensive, income-minded investors. This is due to the higher dividend yields and lower volatility compared to other sectors.
The downside of these sectors is that they aren't always great for short-term traders looking to capitalize on volatility. But that's changed now with the introduction of two inverse ETFs, the Direxion Daily Consumer Staples Bear 1x Shares (NYSE: SPLZ) andDirexion Daily Utilities Bear 1x Shares (NYSE: UTLZ)
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How They Work
STLZ and UTLZ are inverse, not leveraged, ETFs. That means that on a particular day when the underlying indexes for these ETFs decline by 1 percent, STLZ and UTLZ should rise 1 percent. And vice versa.
UTLZ aims to deliver the daily inverse performance of the Utilities Select Sector Index. That index holds companies from the electric utilities, multi-utilities, independent power producers & energy trades, and gas utilities industries. As of December 31, 2016, the index was comprised of companies that had a average market cap of $21.88 billion.
Top holdings in UTLZ includeNextEra Energy Inc (NYSE:NEE) (9.16 percent)Duke Energy Corp (NYSE:DUK) (8.1 percent) andSouthern Co (NYSE:SO) (7.9 percent).
STLZ, the inverse consumer staples ETF, seeks to deliver the daily inverse performance of the Consumer Staples Select Sector Index. That index features names from food retail, household products, food products, beverages, tobacco, and personal products. As of December 31, 2016, the index was comprised of companies with an average market cap of $57.24 billion.
Top holdings in the ETF includeProcter & Gamble Co (NYSE:PG) (12.39 percent)The Coca-Cola Co (NYSE:KO) (8.87 percent) andPhilip Morris International Inc. (NYSE:PM) (7.82 percent)
How To Use Them
It's important to note that inverse ETFs are short-term vehicles only, and shouldn't be used for anything more than intraday trading. "Inverse ETFs are designed to move in the opposite direction of their benchmarks on a daily basis and should not be expected to track their underlying indexes over periods longer than one day," said Direxion.
As we noted above, both the consumer staples and utilities sectors are defensive sectors. And though they both have a reputation for being safe havens in the stock market (neither has a strong correlation to interest rates) STLZ and UTLZ could make for a unique play in this rising market.
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