XLU Utilities Select Sector

Equity markets had a volatile start to August trading as an FOMC release and apparent trading glitches in a number of stocks added to the uncertainty in the marketplace during Wednesday’s session. While the Fed didn’t add any stimulus or hint at further easing, the central bank did lower its economic outlook, saying that activity has ‘decelerated’.

In terms of sector performances, consumers, services, and financials were leaders on the downside, as some of the country’s biggest banks fell on the day. Meanwhile, energy rebounded again, while conglomerates and some big tech firms finished in the green (watch Preferred Stock ETFs Explained).

For foreign currencies, the U.S. dollar index rose by about half a percent on the day while T-Bill did see some outflows as yields rose about five basis points back above the 1.50% level. Thanks in part to this strong dollar, commodities were weaker as metals, agriculture and natural gas all finished the day in the red.

Meanwhile, in ETF trading, most products in the broad equity space traded less than usual despite the trading issues and the Fed-induced volatility. This was especially apparent in the international ETF market, although bonds, currency, and commodity funds did see outsized trading on the day.

Interestingly, the trading issues did appear to hit one segment of the ETF world in particular, the utility ETF space. This segment is generally not known for its high levels of investor interest and often acts as a safe haven, so the outsized volume was especially peculiar on a flat to modestly lower day in the markets (read Convertible Bond ETFs for Income, Growth).  

Apparently, a number of stocks were impacted by issues at Knight Capital (KCG) as close to 150 companies saw erratic and extremely unusual volume levels. This problem also sent KCG down more than 30% on the day, suggesting that the issue could be devastating to the firm.

However, many utility stocks which are big holdings in the various utility ETFs were nowhere to be found on this list of questionable trades, making the movement in the sector funds even stranger.

In fact, the most popular product in the space, Utilities Select Sector SPDR (XLU) saw volume roughly 2.5 times normal with most of the trading coming right after 10am. Yet this high level of trading was nothing compared to truly absurd trading in the Vanguard Utilities Fund (VPU).

This product usually sees paltry volume of around 73,000 shares in a normal day but saw a spike to just over seven million shares during the Wednesday session. This represents a nearly 100x increase in volume including several block trades around 10am that were more than what the fund sees in a normal day (read the Comprehensive Guide to Utility ETF Investing).

While it remains to be seen if the SEC or other regulators investigate this further, as of right now it looks to stand despite the truly baffling volume figures in one of the stranger days in the market for quite some time.

(see more in the Zacks ETF Center)

 
KNIGHT CAP GP (KCG): Free Stock Analysis Report
 
VIPERS-UTIL (VPU): ETF Research Reports
 
SPDR-UTIL SELS (XLU): ETF Research Reports
 
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