Higher volatility over the short, medium and long term will make utilities and other quality and income stocks more attractive relative to growth peers, Bank of America Corp. equity and quant strategist Savita Subramanian said Monday.
Subramanian upgraded the utilities sector to overweight from market weight on a view that higher volatility and falling interest rates will drive better returns than those generated by technology stocks.
“Prefer the tortoise (quality & income) to the hare (growth & re-rating),” she wrote in a note to clients, adding that utility returns have matched those of the Nasdaq “over the long term.” Utilities are also beating tech stocks this year, Subramanian said.
Gaining just over 19% year-to-date, the S&P 500 Utilities subindex is now the top-performing of 11 market sectors in 2024, pulling ahead of the information technology sector. On a total return basis, utilities — which usually offer juicier dividends — are up over 22% in 2024, beating tech stocks by nearly 3 percentage points.
Declining interest rates could make utility stocks even more appealing, the strategist said. BofA expects terminal rates to reach 3.25% by 2025, creating conditions in which dividend yields of utilities and real estate stocks “are more attractive given their inherent inflation protection,” Subramanian wrote in her note. BofA remains underweight on tech stocks.
This article was provided by Bloomberg News.