The rise in share prices has been broadly based with all sectors apart from the consumer staples and
utilities sectors rising over the three months.
Not exact matches
Many of these enormous firms employ thousands of people and are set up to handle the formidable complexities of erecting towering high -
rises or public -
sector projects like schools, hospitals and
utilities.
Not all analysts though, are buying the
sector's story, noting the
rising interest rates could soon sink many of the outperforming
utility names.
Canada's
utility sector is up 9.5 % in the first 11 months of the year, REITs have
risen 7.5 % and several telecoms are up more than 8 %.
Weighed down by
rising interest rates, real estate and
utilities are two of the worst - performing
sectors this year.
Indeed, the technology
sector has been one of the biggest beneficiaries of the Trump presidency: The S&P information technology group has
risen more than 13 percent this year, more than banks,
utilities, health firms, energy companies or consumer brands.
As such, traditionally defensive
sectors, like
utilities and telecommunications, typically become increasingly vulnerable in a
rising rate environment due to their existing large debt positions.
One of the often - heard concerns about
rising rates is the negative effect it could have on «bond proxy»
sectors such as
utilities and REITs.
The
utility sector has the most to lose from
rising interest rates.
Many equity
sectors offering high yields (such as
utilities) are expensive and the most vulnerable to a
rise in rates.
Lydon notes that NOBL is lightly allocated to the
utilities and telecom
sectors, so it is not as vulnerable to
rising interest rates as some rival dividend funds.
He suggests it may hold up as rates
rise since it is lightly allocated to
utilities and has no exposure to telecom, two
sectors that are most adversely affected by higher interest rates.
From an economic perspective, faster GDP growth historically benefits cyclical
sectors, which include financials and energy, while the defensive
sectors like
utilities have historically underperformed in a faster growth environment due to
rising interest rates.
On the other hand, while
rising rates benefit financial stocks, they have historically hindered interest - rate - sensitive
sectors like
utilities and REITs.
These trends present a challenging environment for the
utility sector, and its main political arm, the Edison Electric Institute, has sounded the alarm since its infamous 2013 paper, «Disruptive Challenges», which noted that
utilities could go the way of Kodak and landline telephones if they do not adapt to the
rise of distributed energy.
Energy efficiency programs focusing specifically on the industrial
sector and administered by
utilities, state public benefit entities and regional market transformation organizations are growing in response to
rising energy efficiency goals.
Climate - driven changes in air conditioning can have an out - sized impact on the electric power
sector, forcing
utilities to build additional capacity to meet even higher peak demand when temperatures
rise.
In the finance and banking
sector, this figure
rose to 50 %, and to 42 % among those in energy and
utilities.
The notion of a
rise of well - funded,
sector - based, business groups could add powerful new players into political system, conjuring up the specter of an «Ethanol Party» or a «
Utilities Party,» which could pool resources and operate without any of the typical party loyalty tests, experts say.