U.S. Utility Index Hits Record In Flight to Safety After Brexit

  • Investors see utilities as ‘protective’ in this environment
  • Sector could outperform broader market, Bloomberg analyst says

The Standard & Poor’s 500 Utilities Index touched a record high Friday as investors fled to less risky investments after voters in the United Kingdom decided in a referendum to leave the European Union.

The index rose as much as 0.9 percent to 258.15, its highest level ever. The sector was one of the few in positive territory Friday as global stocks tumbled and the broader S&P 500 Index fell as much as 2.9 percent.

“Utilities are bond proxies,” Michael Underhill, who manages less than $1 billion including utility stocks at Capital Innovations LLC, said Friday by phone. “These are the kinds of things that are protective, defensive in this kind of market environment.”

Utilities are typically viewed by investors as a safe haven in times of volatility because of their steady earnings and dividends. The sector also has looked attractive given historically low interest rates and U.S. treasury bond yields, with the S&P Utilities Index climbing 21 percent in the past 12 months. Utility stocks are especially sensitive to borrowing costs because of their high capital expenses and the time it takes for regulators to set their revenues.

"Pressure on U.S. interest rates, from the dollar strengthening and perceived Fed accommodation, is likely to boost utility valuations, at least on a relative basis," Kit Konolige, an analyst with Bloomberg Intelligence, wrote in a research note Friday. 

One exception on Friday was PPL Corp., the U.S. utility owner that’s gotten more than 60 percent of its profit from U.K. operations. The stock fell as much as 5.3 percent, the most in more than a year.

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