XRT vs. XLU: Two State Street ETFs Near Cyclical Lows Are Flashing Rebound Signals

Mikirduit — One approach to sector-ETF investing is to hunt for funds trading near cyclical lows that carry rebound potential over the medium term. We've identified two State Street sector ETFs that fit that description: the SPDR S&P Retail ETF (NYSE: XRT) and the Utilities Select Sector SPDR Fund (NYSE: XLU). Here's the case for each.

3 Key Takeaways

• Both ETFs are trading near cyclical lows with defined rebound targets. XRT is watched in the $70.38–$78.63 range with upside toward $89.82 (14–27% potential gain), while XLU is watched in the $33.79–$36.27 range with upside toward $46.81 (29–38% potential gain).
• The two funds carry very different risk profiles. XRT's equal weighting spreads exposure across cyclical and non-cyclical retailers alike, making it a bet on a broad-based turnaround; XLU's cap-weighted structure concentrates 58.76% of assets in its top ten utility holdings, tying its fate more closely to a handful of large-cap names.
• On cost and income, XLU has the edge. XLU's 0.08% expense ratio and 2.38% dividend yield outperform XRT's 0.35% expense ratio and 0.9% yield — though XRT's upside case rests more on valuation and potential M&A activity among smaller-cap retailers.

XRT: Upside and Risk

XRT offers broad exposure to U.S. retail stocks, tracking the S&P Retail Select Industry Index. Its holdings are weighted in roughly equal measure, even among its ten largest positions.

Buying XRT is effectively a wager that retailers can sustain sales growth and profit margins — a bet highly sensitive to the health of consumer spending.

Over the past year, XRT has gained 3.74%. Over five years, it's down 13.15%. But measured against its all-time high since the fund's 2006 launch, it has climbed 346%.

Does that make XRT a weak performer? Not necessarily. Looking at the post-Covid period since 2022 — excluding the extraordinary run-up from the pandemic crash — the fund has averaged roughly a 40% gain off its cyclical bottoms.

How long do those cycles run? We tested correlations against interest-rate trends, GDP data and inflation, and found the relationships weak. Tracking XRT's rallies since 2022 instead, the climb to peak has typically taken three to six months, with one notable exception: a rally lasting more than a year, from October 2023 to November 2024.

The Top Ten Holdings

Because XRT's weighting is so even, its ten largest holdings account for just 15.81% of the fund — a modest share that cuts both ways. If small and large retailers alike stage a recovery, XRT stands to capture broad exposure to that upside. But if gains accrue only to large-cap names, the equal-weight structure could act as a drag on performance.

The fund's ten largest positions are:

• GameStop (NYSE: GME) — 1.82%
• Ollie's Bargain Outlet Holdings (Nasdaq: OLLI) — 1.69%
• Victoria's Secret & Co. (NYSE: VSCO) — 1.6%
• Warby Parker Inc., Class A (NYSE: WRBY) — 1.55%
• Burlington Stores Inc. (NYSE: BURL) — 1.54%
• Revolve Group Inc. (NYSE: RVLV) — 1.54%
• Sally Beauty Holdings Inc. (NYSE: SBH) — 1.54%
• Dillard's Inc., Class A (NYSE: DDS) — 1.51%
• Ross Stores Inc. (Nasdaq: ROST) — 1.51%
• Kroger Co. (NYSE: KR) — 1.51%

The mix blends cyclical and non-cyclical retail names in roughly equal measure. Against that backdrop, we see meaningful headwinds ahead: the Federal Reserve's rate increases typically take about six months to filter through to the real economy.

We're watching a bottoming range of $70.38 to $78.63 per unit for XRT, with upside potential toward $89.82. That implies a possible gain of 14.23% to 27%, assuming a recovery window of three to six months, an expense ratio of 0.35%, and a dividend yield near 0.9%.

XLU: Upside and Risk

XLU provides exposure to the utilities and infrastructure sector within the S&P 500.

Utilities are widely viewed as a defensive business model — but that hasn't made the ETF immune to volatility. Infrastructure is a capital-intensive business, which means heavy debt leverage, leaving the sector sensitive to Federal Reserve policy.

Comparing XLU's performance against Fed rate cycles shows a weak correlation when hikes are gradual. From September 2016 to December 2018, the Fed raised rates by 200 basis points, yet XLU still gained 17%. But during the aggressive tightening cycle of 2022-2023, XLU fell 2%.

The relationship flips when rates fall. A 175-basis-point rate cut between January and December 2019 coincided with a 25.93% gain for XLU. During the emergency near-zero rates of the pandemic, from April to December 2020, XLU rose 36%. A similar 175-basis-point cut from September 2024 into 2025 saw XLU climb 16.85%. Even when rates were held at a high 5.5% from August 2023 to August 2024, XLU still gained 17.65%.

Historically, XLU is down 7.49% over the past year, up 21.31% over five years, and up 161.22% since its 1998 launch.

Unlike XRT, XLU's weighting scheme favors larger market-cap names.

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The Top Ten Holdings

XLU's ten largest positions make up 58.76% of the portfolio — a concentrated tilt. The top three alone account for 27.54%.

That cap-weighted structure typically manages risk well in broad market indexes, where investors benefit from natural rotation as mid-cap names grow into large caps. But in a sector-specific ETF like XLU, a decline in its largest holdings can signal broader weakness spreading to smaller names, pressuring the fund overall.

The ten largest holdings are:

• NextEra Energy (NYSE: NEE) — 12.73%
• Southern Co. (NYSE: SO) — 7.69%
• Duke Energy (NYSE: DUK) — 7.12%
• Constellation Energy (NYSE: CEG) — 6.95%
• American Electric Power (Nasdaq: AEP) — 5.16%
• Dominion Energy (NYSE: D) — 4.29%
• Sempra (NYSE: SRE) — 4.1%
• Entergy (NYSE: ETR) — 3.7%
• Vistra (NYSE: VST) — 3.51%
• Xcel Energy (Nasdaq: XEL) — 3.51%

Near-term risk for XLU centers on further Fed rate increases, which could raise refinancing costs and dampen demand for infrastructure buildout — particularly the power needed for data centers — if higher rates delay large-scale expansion plans.

We see potential downside toward $33.79 to $36.27 per unit, a moderate scenario assuming the Fed avoids aggressive further hikes. Against a moderate target of $46.81, that implies upside of 29% to 38%, with an expense ratio of 0.08% and a dividend yield near 2.38%.

The Bottom Line

Both ETFs offer a way to capture momentum in stocks currently trading near cyclical lows. If that momentum materializes, the upside could outpace the S&P 500's average annual return. But higher potential reward comes with higher risk — an unexpected economic shock could send either fund lower than the broader market.

So which is the better bet? XLU's edge lies in rising electricity demand tied to data-center growth — a potential catalyst once rate pressure eases, provided data-center expansion plans aren't delayed or scrapped. XRT, meanwhile, is a bet on cheap valuations and a possible turnaround, with equal weighting that could amplify gains if consolidation, mergers or acquisitions lift smaller-cap retail names on speculation alone.

Each carries its own balance of opportunity and risk. That said, setting sector-specific factors aside, XLU comes out ahead on the numbers that matter to cost-conscious investors: a lower expense ratio and a meaningfully higher dividend yield than XRT. With that in mind — would you go with XLU or XRT?

The numbers are only the beginning.

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