Why are Hedge Funds Bullish on The Utilities Select Sector SPDR Fund (XLU) Now?

We recently compiled a list of the 191.50% in 3 Years: Peconic Hedge Fund's Top 10 Stock Picks. In this article, we are going to take a look at where The Utilities Select Sector SPDR Fund (NYSE:XLU) stands against the other stocks.

Established in 1997, Peconic Partners is a hedge fund manager based in New York, under the leadership of William Harnisch. The firm manages both its capital and that of its clients, using long/short equity hedge fund strategies. It also follows a thematic investment approach with a structured and consistent methodology, aiming to achieve positive returns over the long term regardless of market conditions.

Peconic Partners's stock selection approach is driven by its deep experience. The Peconic Partners investment strategy has a history spanning over 40 years, originating with its predecessor firm. Peconic Partners' long-term track record, history of capital appreciation, and past ability to generate alpha are testaments to the vision, insight, and patience derived from their experience.

William Harnisch is the Chief Investment Strategist at Peconic Partners. He managed Peconic Partners from the late 1970s until 1997 when the long-only business was sold to a privately-held financial services firm aiming to expand its asset management business. However, William Harnisch and his partners retained exclusive ownership of the hedge business. In December 2004, he and the current Peconic team formed Peconic Partners, continuing the successful and disciplined hedge fund strategy practiced since the late 1970s.

Mr. Harnisch's career began in 1968 at Chase Manhattan Bank. He later joined Forstmann-Leff Associates (FLA), managing assets exceeding $5 billion and entering the hedge fund business in 1986. In 1997, he sold FLA's long-only business and in 2004, he founded Peconic Partners to concentrate on hedged products. William Harnisch holds a B.B.A. from Baruch College and is a Chartered Financial Analyst. He is active in philanthropy through the William F. Harnisch Foundation and is a board member of the Baruch College Fund. His market insights have been featured in the Wall Street Journal and Barron’s.

In 2023, Peconic Partners LLC regained the top spot on HedgeFollow's Top 20 Best Performing Hedge Funds list. Despite challenges like rising inflation and market volatility, Peconic Partners delivered a remarkable 191.50% performance over three years. This achievement is significant as many money managers struggled during a surprising market rally. While only 38% of large-cap mutual funds beat the market in 2023, and long-short hedge funds saw minimal gains, Peconic Partners excelled. For the fourth year in a row, the New York-based fund achieved an annual gain of 38%, three times higher than the S&P 500’s performance.

In late December of 2023, Mr. Harnisch increased bets against the SPDR S&P 500 ETF Trust and took short positions in expensive industrial stocks and consumer-product makers that have raised prices aggressively. This caused the fund's net leverage to decrease from 50% to 33% in a few weeks, and it has continued to drop in early 2024.

Our Methodology

The companies mentioned in this article come from Peconic Hedge Fund's top 10 stock picks at the end of the first quarter of 2024. To give readers a thorough understanding of these companies, we've included analyst ratings and other relevant details. We also mention the number of hedge fund investors in each company. Why focus on the stocks that hedge funds invest in? Our research shows that mimicking the top picks of the best hedge funds can lead to market-beating returns. Our quarterly newsletter's strategy, which selects 14 small-cap and large-cap stocks each quarter, has returned 275% since May 2014, outperforming its benchmark by 150 percentage points. (see more details here)

A power line technician working on a utility pole in a residential area.

The Utilities Select Sector SPDR Fund (NYSE:XLU)

Number of Hedge Fund Holders: 21

Ranking 3rd in Peconic Hedge Fund's top 10 stock picks is The Utilities Select Sector SPDR Fund (NYSE:XLU). The Utilities Select Sector SPDR Fund (NYSE:XLU) provides a dividend yield of about 3.5%, which is attractive to investors seeking regular income, especially in a low-interest-rate environment. Companies in The Utilities Select Sector SPDR Fund (NYSE:XLU) operate in regulated industries, ensuring stable revenue and reducing the impact of market volatility. Additionally, substantial investments in infrastructure and renewable energy support long-term growth, benefiting The Utilities Select Sector SPDR Fund (NYSE:XLU) investors.

The outlook for utility stocks is improving primarily because inflation appears to be decreasing, which suggests that interest rates will also decline. Recent reports show inflation cooling, with June's CPI down 0.1% from the previous month and closer to the Fed's 2% target. Core inflation also remains stable. This trend suggests a possible rate cut by the Fed, anticipated around September, with an 80% likelihood of a 25 basis point reduction, according to Samuel Smith, an analyst at High Yield Investor.

Regulatory filings for the first quarter of 2024 show that Peconic Partners owned 1,611,484 shares of the Utilities Select Sector SPDR Fund (NYSE:XLU), worth $105,793,925, representing 4.69% of their portfolio.

Overall XLU ranks 3rd on our list of Peconic Partners' top 10 stock picks. You can visit 191.50% in 3 Years: Peconic Hedge Fund's Top 10 Stock Picks to see the other stocks that are on hedge funds’ radar. While we recognize XLU's potential as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than XLU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.