Stocks and ETFs in the Utility sector have become one of the most popular ways to hedge the current inflation and supply-chain crisis. With so many utilities and energy companies around the world, it can be difficult to pick the best utility ETFs for your portfolio.
Here is a list of the 8 best utility ETFs to help you make a decision.
- Utilities Select Sector SPDR ETF (XLU)
- Vanguard Utilities ETF (VPU)
- iShares Global Utilities ETF (JXI)
- First Trust Utilities AlphaDEX Fund (FXU)
- Invesco S&P 500 Equal Weight Utilities ETF (RYU)
- Invesco DWA Utilities Momentum Portfolio (PUI)
- KraneShares MSCI China Environment Index ETF (KGRN)
- iShares Global Clean Energy ETF (ICLN)
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1. Utilities Select Sector SPDR ETF (XLU)
The Utilities Select Sector SPDR ETF (XLU) is an exchange-traded fund that invests in U.S. utility stocks. The XLU tracks the performance of the Utilities Select Sector Index, a benchmark that includes electric and gas utilities, as well as water and multi-utilities.
The XLU is one of the most popular sector-specific ETFs, with over $9 billion in assets under management. The fund is also one of the cheapest, with an expense ratio of just 0.14%. The XLU has a dividend yield of 3.3%, which is higher than the average dividend yield for the S&P 500 Index. The fund's top holdings include Duke Energy, Southern Company, and NextEra Energy.
2. Vanguard Utilities ETF (VPU)
The Vanguard Utilities ETF (VPU) is another exchange-traded fund that invests in U.S. utility stocks. The VPU tracks the performance of the MSCI US Investable Market Utilities 25/50 Index, a benchmark that includes electric and gas utilities, as well as water and multi-utilities.
The VPU is one of the largest sector-specific ETFs, with over $5 billion in assets under management. The fund is also one of the cheapest, with an expense ratio of just 0.12%. The VPU has a dividend yield of 3.1%, which is slightly lower than the average dividend yield for the S&P 500 Index. The fund's top holdings include Duke Energy, Southern Company, and NextEra Energy.
3. iShares Global Utilities ETF (JXI)
The iShares Global Utilities ETF (JXI) is an exchange-traded fund that invests in global utility stocks. The JXI tracks the performance of the MSCI World Utilities Index, a benchmark that includes electric and gas utilities from developed and emerging markets.
The JXI is one of the largest global sector-specific ETFs, with over $2 billion in assets under management. The fund has an expense ratio of 0.48%. The JXI has a dividend yield of 3.4%, which is higher than the average dividend yield for the MSCI World Index. The fund's top holdings include National Grid, Iberdrola, and Enel.
4. First Trust Utilities AlphaDEX Fund (FXU)
The First Trust Utilities AlphaDEX Fund (FXU) is an exchange-traded fund that invests in U.S. utility stocks. The FXU tracks the performance of the StrataQuant Utilities Index, a benchmark that includes electric and gas utilities, as well as water and multi-utilities.
The FXU is one of the largest sector-specific ETFs, with over $1 billion in assets under management. The fund has an expense ratio of 0.60%. The FXU has a dividend yield of 2.9%, which is lower than the average dividend yield for the S&P 500 Index. The fund's top holdings include PG&E Corporation, Waste Management, Inc, Vistra Corp and Pinnacle West Capital Corporation.
5. Invesco S&P 500 Equal Weight Utilities ETF (RYU)
The Invesco S&P 500 Equal Weight Utilities ETF (RYU) is an exchange-traded fund that invests in U.S. utility stocks. The RYU tracks the performance of the S&P 500 Equal Weight Utilities Index, a benchmark that includes electric and gas utilities, as well as water and multi-utilities.
The RYU is one of the largest sector-specific ETFs, with over $1 billion in assets under management. The fund has an expense ratio of 0.40%. The RYU has a dividend yield of 2.8%, which is lower than the average dividend yield for the S&P 500 Index. The fund's top holdings include FirstEnergy Corp, CenterPoint Energy Inc, Constellation Energy Corp and Eversource Energy.
6. Invesco DWA Utilities Momentum Portfolio (PUI)
The Invesco DWA Utilities Momentum Portfolio (PUI) is an exchange-traded fund that invests in U.S. utility stocks. The PUI tracks the performance of the Dorsey Wright Utilities Index, a benchmark that includes telecommunication and electric and gas utilities, as well as water and multi-utilities.
The PUI is one of the largest sector-specific ETFs, with over $500 million in assets under management. The fund has an expense ratio of 0.60%. The PUI has a dividend yield of 2.6%, which is lower than the average dividend yield for the S&P 500 Index. The fund's top holdings include Southern Company, Duke Energy, and Dominion Resources.
7. KraneShares MSCI China Environment Index ETF (KGRN)
The KraneShares MSCI China Environment Index ETF (KGRN) is an exchange-traded fund that invests in Chinese companies that are involved in environmental protection and clean technology. The KGRN tracks the performance of the MSCI China Environment Index, a benchmark that includes companies from sectors such as water treatment, air pollution control, and renewable energy.
The KGRN is one of the largest sector-specific ETFs, with over $300 million in assets under management. The fund has an expense ratio of 0.70%. The KGRN has a dividend yield of 1.7%, which is lower than the average dividend yield for the MSCI China Index. The fund's top holdings include Sino Environment, C-Enery Technology, and Air China.
8. iShares Global Clean Energy ETF (ICLN)
The iShares Global Clean Energy ETF (ICLN) is an exchange-traded fund that invests in companies from around the world that are involved in clean energy. The ICLN tracks the performance of the S&P Global Clean Energy Index, a benchmark that includes companies from sectors such as renewable electricity generation, energy storage, and energy efficiency.
The ICLN is one of the largest sector-specific ETFs, with over $200 million in assets under management. The fund has an expense ratio of 0.48%. The ICLN has a dividend yield of 1.3%, which is lower than the average dividend yield for the S&P Global 1200 Index. The fund's top holdings include NextEra Energy, First Solar, and SunPower Corporation.
Why are Utilities ETFs good investments?
Utilities ETFs offer investors a number of benefits, including:
- Diversification: Utilities ETFs provide exposure to a wide range of utility stocks, which can help to diversify a portfolio.
- Stability: Utilities are typically considered to be defensive stocks, meaning they tend to perform well in times of market turmoil.
- Income: Many utilities ETFs offer a high dividend yield, making them an attractive option for income-seeking investors.
- Low costs: Utilities ETFs typically have low expense ratios, making them a cost-effective way to invest in the sector.
What are the risks of investing in Utilities ETFs?
Utilities ETFs are not without risk, and investors should be aware of the following risks before investing:
- Interest rate risk: Rising interest rates can lead to lower utility stock prices, as investors shift their money into higher-yielding investments.
- Regulatory risk: The utility sector is heavily regulated, and changes in regulations can have a negative impact on utility companies and their stock prices.
- Dividend risk: Utility companies may cut or eliminate their dividends in order to save cash, which could lead to lower returns for investors.
- Economic risk: Slowing economic growth can lead to lower demand for utilities, which can negatively impact stock prices.
The Bottom Line
An allocation to the utilities sector has proven to be one of the most effective hedges against inflation, tight supply chains and the market turmoil since Jerome Powell began raising interest rates. While the sector may not have the same upside potential as some other areas of the market, it offers investors a way to protect their portfolios from downside risk.
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