Utilities ETF XLU gains hinge on regulatory clarity for AI-driven power demand amid high Treasury yields and sector repricing.
The Utilities Select Sector SPDR Fund (XLU) has surged 15% over the past year, trading near $45, as hyperscaler AI power demand transforms the traditionally defensive sector into a growth story. However, performance remains tied to the 10-year Treasury yield, with levels above 4.7% pressuring dividend appeal and capital costs for top holdings like NextEra Energy and Southern Company.
XLU’s concentration in five stocks—NextEra (14%), Southern Co. (8%), Duke Energy (7%), Constellation Energy (6%), and American Electric Power (5%)—accounts for nearly 40% of its net asset value. These firms’ ability to secure AI power deals depends on PJM Interconnection’s 2027 regulatory framework, which will shape long-term sector valuations.
While the fund’s 0.08% expense ratio remains a low-cost option for sector exposure, rising yields and regulatory uncertainty could limit further gains despite strong year-to-date performance.