The latest Barron’s had an article on the utility sector, and the threat it faces from rising interest rates. (See article here.) The article included a chart showing the XLU’s performance vs. the 10-year treasury for the last five years. I’ve expanded that chart to go back 15 years.
Source: FactSet
Looking at the chart you can see the XLU decline in 2013 and at the end of 2016 when there were some sharp upward movement in rates. Still, there are other periods when there has been a general upward trend in rates and utilities have gone up as well.
Another important factor to consider with utilities is their P/E ratio. The chart below shows the P/E of the XLU over the last fifteen years, and you can see that we are currently near record levels. This gives some evidence that if interest rates increase, utility investors will not be able to fall back on earnings valuations to justify the current level of utility prices. This would likely add more downward pressure to the group.
Source: FactSet