3 Unique Utilities ETFs To Consider
The Federal Reserve cut interest rates again Wednesday, lowering the benchmark U.S. lending rate by 25 basis points, but for many investors, that wasn't enough as stocks tallied only modest gains on the day.
Market participants seemed to me concerned with rising division within the Fed and whether or not the central bank will lower rates again than the fact that it did so on Wednesday. Overall, just one of the 11 sectors in the S&P 500 finished higher yesterday: rate-sensitive utilities.
Just 21 exchange traded funds hit record highs on Wednesday and of that group, five were dedicated utilities. Four investors looking for something a little more adventurous that basic large-cap utilities funds, here are some ideas to consider.
Invesco S&P 500 Equal Weight Utilities ETF (RYU)
Extending its year-to-date gain to nearly 20%, the Invesco S&P 500 Equal Weight Utilities ETF (NYSE:RYU) was one of the utilities ETFs hitting record highs on Wednesday. The fund, which follows the S&P 500 Equal Weight Telecommunication Services & Utilities Index, is ideal for investors looking to avoid some of the concentration risk associated with typical utilities ETFs.
None of RYU's 28 holdings exceed weights of 4.12%. One of the trade offs for the reduction in concentration risk is that RYU carries a lower dividend yield (2.54%) compared to cap-weighted utilities ETFs. Additionally, RYU's earnings multiples are mostly inline with standard utilities ETFs. On the bright side, the equal-weight fund has been less volatile than cap-weighted rivals this year.
See Also: A Dependable Dividend ETF
Invesco S&P SmallCap Utilities & Communication Services ETF (PSCU)
The Invesco S&P SmallCap Utilities & Communication Services ETF (NASDAQ:PSCU) isn't one of the utilities ETFs that hit record highs, but the fund is up an admirable 11% this year. However, there are risks associated with this ETF that don't make it appropriate for all investors.
For investors looking for the above-average yields and reduced volatility associated with large-cap utilities, PSCU is an ETF that could easily disappoint. While PSCU will usually be less volatile than a traditional small-cap benchmark, the lack of growth that comes with the utilities sector will restrain this fund's performance compared to broader small-cap products.
John Hancock Multifactor Utilities ETF (JHMU)
The John Hancock Multifactor Utilities ETF (NASDAQ:JHMU) was one of the utilities ETFs in Wednesday's all-time high club and offers investors credible, factor-based exposure to a sector dominated by cap-weighted strategies.
Like Hancock's other sector ETFs, JHMU focuses on factors, such as lower price, higher profitability and smaller market values. JHMU follows the John Hancock Dimensional Utilities Index, an index crafted by Dimensional Fund Advisors, which has been developing multi-factor strategies for over 30 years.
This may be one of investors' best bets as an alternative to usually staid utilities ETFs.
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