Low-interest rates are making treasury notes and bonds very unappealing for investors. Under these present conditions, finding safe income-producing investments can be difficult.
Have you thought of investing in utility ETFs? These funds invest in solid companies that pay above-average dividends. Since consumer demand for utilities is constant, utility stocks provide a steady and healthy yield. Utility ETFs give you broad exposure to these utility companies without the volatility of individual stock investing.
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Utilities ETFs Biggest Gainers and Losers
The biggest gainers and losers lists for utilities ETFs can reveal how your fund reacts to interest rate movements relative to the other utilities ETFs. Many utility companies have high-debt levels. Consequently, rising interest rates can have an adverse effect on these funds. Also, bear and bull markets can affect the stock price of the ETFs on these lists.
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Direxion Daily Utilities Bull 3X Shares
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ProShares Ultra Utilities
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First Trust Utilities AlphaDEX Fund
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iShares U.S. Utilities ETF
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Fidelity MSCI Utilities Index ETF
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Invesco DWA Utilities Momentum ETF
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iShares Global Utilities ETF
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Invesco S&P 500 Equal Weight Utilities ETF
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Vanguard Utilities ETF
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SPDR Select Sector Fund – Utilities
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Virtus Reaves Utilities ETF
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Invesco S&P SmallCap Utilities & Communication Services ETF
Premarket Utilities ETFs
Stock market rallies and sell-offs can often continue from one day to the next. The premarket can give you some indication of this possibility. Plus, you have the opportunity to react to rapidly changing market conditions by executing trades in these sessions.
Aftermarket Utilities ETFs
Sometimes, you may get a trade alert just before the end of the day’s session ends. If you miss the opportunity to make the trade, you can take advantage of the aftermarket session. However, trading conditions aren’t as good as the regular sessions. So, your ETFs may trade like penny stocks.
Why Invest in Utilities ETFs?
Utility stock prices rarely fluctuate. This turns off some investors seeking capital gains. Here are 3 reasons utility EFTs may spark your interest.
Long-term growth: Utilities don’t qualify as growth stocks. However, these funds have a history of yielding long-term gains comparable to the S&P 500. Utilities ETFs can offer long-term growth without the heavy risks belonging to conventional growth stocks.
Bear resistant: Utilities ETFs have the ability to stay strong during a bear market. For this reason, some investors use these funds as defensive investment tools. If you want to create a defensive bear market strategy, keep these ETFs in mind.
Diversification: Investors generally achieve diversification in a portfolio by picking stocks with a negative correlation to each other. This means the companies’ stock prices move in opposite directions.
You can also diversify your portfolio by choosing funds with different concentrations. Utilities ETFs have a high concentration of income stocks — mutual funds concentrate on growth stocks like health and tech. Placing these funds in the same portfolio can boost your diversification.
3 Utilities ETF(s) by AUM
The following funds are the 3 best utilities ETFs right now. Benzinga ranks each ETF by its assets under management (AUM). Essentially, the utility ETF with the highest AUM has the most buying power.
1. Utilities Select Sector SPDR Fund ETF (XLU): With an AUM of $10.74 billion, XLU tops this field of ETFs. This fund is gigantic and highly liquid. It copies the performance of the Sector SPDR. This index has a reputation for reasonably low volatility and high dividend yields. About 73% of this fund’s holdings are large-cap corporations. XLU uses its mega large asset pool and volume to dominate this sector. Its holdings include Sempra Energy (NYSE: SRA), Duke Energy (NYSE: DUK) and Nextera Energy (NYSE: NEE).
Primarily, XLU gives investors major exposure to a select group of 10 to 15 companies out of its 30 holdings. It allocates 63.49% to its top 10 holdings. This narrow focus is not consistent with the more neutrally balanced funds in this sector. But the strategy works for XLU. Investors looking for a good income with a low-risk factor will like XLU. Its current dividend distribution yield is 3.36% and the expense rate (ER) is 0.13.
2. Vanguard Utilities Index Fund ETF (VPU): VPU tracks the MSCI US IMI Utilities Index. It has a strong combination of a 3.14% dividend yield and a low ER of 0.10. This fund’s asset allocation to its 70 holdings is very similar to XLU. But its AUM of $3.87 billion lacks the volume power VPU has.
This fund’s portfolio includes Nextera Energy (NYSE: NEE) and Dominion Energy (NYSE: D). These 3 companies and 7 other holdings account for 55.5% of this fund’s asset allocation. VPU invests in some companies that roughly qualify as utility businesses. But it’s almost 100% sector-specific.
3. iShares U.S. Utilities ETF (IDU): If you are seeking a more comprehensive approach to the utilities sector, IDU would appeal to you because it holds more small- and mid-cap utilities than the other utilities ETFs funds. IDU follows the investment outcomes of the Dow Jones Utility Index. Since this index uses a market capitalization-weighted system, this fund’s top 10 holdings are large-cap companies like Duke Energy (NYSE: DUK), Nextera Energy (NYSE: NEE) and Dominion Energy (NYSE: D).
IDU has an AUM of $875.6 million and an ER of 0.43. Investors get a nice dividend yield of 3.06%. It can be a good addition to your portfolio as a consistent source of income and hedge against a major market downturn.
Best Online Brokers for Utilities ETFs
Online brokers make it possible for you to have access to utilities ETFs without professional assistance. You can research your potential holdings, develop an investment strategy, make swift trades and track your utilities. Here are 3 of the top online brokers.
1. You Invest by J.P. Morgan
If you’re already a customer with Chase Bank, Chase You Invest by J.P. Morgan is a no-brainer. You can easily research, trade and manage your investments from your mobile device. You Invest provides online tools to search for investments, track companies and rollover your assets.
Only U.S. clients are able to open a You Invest account but it takes, on average, just a day to open and you’re able to apply fully online. Equipped with portfolio reports and pie charts, the mobile app is simple and user-friendly. The app is available for both iOS and Android devices.
With Chase You Invest you’ll have access to roughly 5,000 stock exchanges. There are plenty of research and educational tools provided on the app.
Overall, the Chase You Invest is a platform for stock trading is a great option because it’s easy to open and fund an account. It’s also reliable thanks to its strong parent company, J.P. Morgan.
TradeStation is a great ETF trading hub. There is no minimum deposit and no charge for ETF trades.
Its platforms allow you to manage your utilities ETFs from almost any space.
This broker provides all the information you need to know about the 15 utilities ETFs available in the U.S.
If you are nervous about investing real money in a new arena, TradeStation offers simulated trading.
It gives you a chance to test your strategies in real-time.
With decades of historical data, you can backtest your utilities ETF strategies on all 3 trade platforms.
With $0 ETF trades and $0 minimum deposit, Firstrade is one of the most accessible online brokers in the industry.
You can enhance your utilities ETF research with regular investing reports from Benzinger, Morningstar and Zacks. Regardless of your experience level, Firstrade provides educational material and webinars.
This broker’s trading database is extensive. It offers historical data for you to use for backtesting and analysis. The database includes 30 days of tick-by-tick data, 10 years of 1-minute data and over 30 years of daily data.
4. TD Ameritrade
This top-rated online broker offers you the optimal ETF trading experience. You’ll be able to trade any of the U.S. utilities ETFs — commission-free.
TD Ameritrade helps you with your research by providing an ETF comparison tool. It allows you to access your ETFs by using performance standards, cost evaluations and expert analysis.
TD Ameritrade’s extensive education resources include instructional videos, webcasts and in-person events. You can learn more about ETF basics, leveraging, measuring liquidity and the equal weight system.
The Final Decision on Investing in Utilities ETFs Now
Tough financial times are inevitable. But most people continue to pay their electric bills in the worst conditions. This makes the utilities sector almost recession-proof. This is the reason utility stocks pay higher than average dividends. Utilities ETFs give you a safer way to share in the utility companies’ revenues.
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