The breakout in this utilities ETF has room to run, says Carter Worth

While utilities are often perceived as market laggards, their total return, including reinvested dividends, has matched the S&P 500 over the past 25 years. The sector is currently breaking out to new 52-week and all-time highs, signaling significant upward momentum. Given this technical breakout and historical total return performance, the article recommends an overweight position in utilities, anticipating further gains towards the $88 level.

Analysis

The analysis reframes the investment case for the utilities sector, arguing that its common perception as a market laggard is misleading when viewed through a total return lens. Over the past 25 years, the sector's total return, inclusive of reinvested dividends, has matched that of the S&P 500. This parity highlights the critical contribution of the sector's historically higher yields to long-term investor returns, a fact underscored by the comparison since the March 2000 peak where price returns lagged significantly but total returns were equivalent. The immediate catalyst for the bullish outlook is a significant technical event: the utilities sector is currently breaking out to new 52-week and all-time highs, surpassing a previous peak from last November. This technical strength is interpreted as a strong buy signal, suggesting the current upward momentum has further room to run towards a prospective target of the $88 level.

Key Decisions for Investors

• Investors should consider an overweight allocation to the utilities sector, as the current technical breakout to all-time highs suggests significant positive momentum.
• The thesis is heavily reliant on the compounding effect of dividends, so investors should monitor the sector's yield attractiveness and dividend sustainability as key performance drivers.
• The stated target of an $88 price level serves as a specific benchmark for the anticipated move, which can be used to gauge the trade's progression and potential exit points.