Why AES Underperformed the Utilities SPDR ETF in 2015



Stock performance

AES (AES) is set to announce its 3Q15 earnings on November 5, 2015. Since January 1, 2015, AES Corporation has highly underperformed the Utilities Select Sector SPDR Fund (XLU) benchmark. AES stock investors lost ~23% year-to-date as opposed to the ~7% loss in the Utilities SPDR ETF. Year-to-date losses of Duke Energy (DUK), NextEra Energy (NEE), and Southern Company (SO) were ~ 13%, ~3%, and ~7% respectively. AES accounts for 1.4% of the Utilities SPDR ETF.

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Negative returns in the utility industry

Since January 1, 2015, almost all stocks in the utility industry have posted negative returns. This is mainly due to the fear that the US Federal Reserve will hike interest rates this year. Utilities stocks are generally high and steady dividend paying stocks and are thus considered proxies for bonds. If the Federal Reserve raises interest rates, yields on bonds could go up, making utility stocks less attractive. Moreover, in August, The EPA (Environmental Protections Agency) rolled out a clean power plan requiring companies that rely heavily on coal to shift towards cleaner alternatives. This would require utility companies to incur heavy cost outlays in terms of plant and equipment upgrades.

About AES

AES is one of the leading power utility companies in the United States. It is a Fortune 200 company and is headquartered in Arlington, Virginia. It currently has a presence in 18 countries and operates through six Strategic Business Units, namely the United States, the Andes, Brazil, MCAC (Mexico, Central America, and the Caribbean), Europe, and Asia. AES has a total generation capacity of more than 36,050 MW (or megawatts) and has an additional 5,819 MW capacity under construction.

To find out more about AES, you can read AES Corporation: Its Evolution Up until Now.


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