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ETF Showdown: Turning The Lights On

The standout sector this year has been utility stocks, currently up 18 percent year to date and hitting a new all-time high this week. During the recent 10-percent selloff in the broad market, it was one of the few survivors able to recapture old highs.

	From an investor&#39;s view, the sector may be considered boring, but there is no argument the fact that the Dow Jones Utility Average is beating the Dow Jones Industrial Average by 18 percent this year. With hundreds of utilities to choose from, the best strategy may be an ETF that encompasses a large portion of the sector and eliminates any company-specific risk. Three of the larger utility ETFs are highlighted below.

	The Utilities SPDR (ETF) (NYSE: <a class="ticker" href="/stock/xlu#NYSE">XLU</a>) tracks 32 companies across five subsectors of the utilities industry. Electrical utilities at 57 percent and multi-utilities at 39 percent are the most heavily weighted sub-sectors. The top individual holdings include Duke Energy Corp&nbsp;with a 9.5 percent, The&nbsp;Southern Company&nbsp;at 7.7 percent and NextEra Energy Inc&nbsp;coming in at 7.6 percent.

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/etfs/sector-etfs/14/06/4646977/a-comprehensive-guide-to-utility-etfs-etf-news-and-commentary">A Comprehensive Guide To Utility ETFs</a></bzrelatedlink>

	XLU is up 14 percent over the last 12 months and 4 percent over the last six months. The stock has finished the last four weeks up and is currently trying to break its all-time high of $44.36 set June 30. A breakout above this point would be a very bullish signal for the ETF. The ETF has an expense ratio of 0.16 percent and a dividend yield of 3.4 percent.

	The Vanguard Utilities ETF (NYSE: <a class="ticker" href="/stock/vpu#NYSE">VPU</a>) tracks 78 companies across six subsectors within the utilities industry. Electrical utilities at 52 percent and multi-utilities making up 34 percent are the highest weighted subsectors. The ETFs individual holdings are similar to that of XLU with DUK at the top with an 8.1 percent allocation, followed by NEE at 6.3 percent and Dominion Resources, Inc. also at 6.3 percent.

	VPU is up 14 percent over the last 12 months and 4 percent over the last six months. The stock recently broke through resistance at $95.30 in September and has slightly more resistance at $96.82, which is the all-time high, before a breakout is confirmed. The ETF has an expense ratio of 0.14 percent with a dividend yield of 3.5 percent.

	The iShares Global Utilities ETF (NYSE: <a class="ticker" href="/stock/jxi#NYSE">JXI</a>) provides investors looking for a utility ETF option with more diversity around the globe. The portfolio is made up of 70 utility companies across 12 countries. With the most heavily weighted countries being the United States at 53 percent, the U.K. at 12 percent and Spain at 6 percent. The top individual holdings include DUK making up 5.4 percent of the fund, National Grid Plc&nbsp;at 5.2 percent and SO coming in at 4 percent.

	JXI is up 6 percent over the last 12 months and down 0.5 percent over the last six months. The ETF has been up the last four days following a pullback and is currently sitting on the 50-day moving average. It has an expense ratio of 0.47 percent and pays a dividend yield of 3.4 percent.

The utility sector was the best performing slice of the S&amp;P 500 Index pie in the first quarter of 2014.  The Utility Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xlu#NYSE">XLU</a>), which tracks 32 large-cap utility infrastructure companies, posted a gain of 10 percent through the first three months of the year.  The three largest holdings in this ETF include: Duke Energy Corporation (NYSE: <a class="ticker" href="/stock/duk#NYSE">DUK</a>), Dominion Resources (NYSE: <a class="ticker" href="/stock/d#NYSE">D</a>), and NextEra Energy (NYSE: <a class="ticker" href="/stock/nee#NYSE">NEE</a>). 

	This performance was largely attributable to stabilization in interest rates coupled with a shift in investor demand from high beta companies to a stalwart sector that is known for its defensive properties.  The gain in utility stocks comes on the heels of a relatively mediocre 2013 that saw this sector flat-line after the Fed indicated it would begin reducing its quantitative easing measures. 

 See also: <a href="http://www.benzinga.com/markets/emerging-markets/14/03/4428748/emerging-market-etfs-show-signs-of-life">Emerging Markets ETFs Show Signs of Life</a>

	One of the primary benefits of investing in utility companies is their <a href="http://www.benzinga.com/etfs/sector-etfs/14/03/4413843/2-diversified-etfs-for-high-monthly-income">above-average dividend yields</a> and low stock price volatility.  Right now the current 30-day SEC yield on XLU is 3.65 percent, compared to 1.84 percent for the broad SPDR S&amp;P 500 ETF (NYSE: <a class="ticker" href="/stock/spy#NYSE">SPY</a>).  In addition, utility stocks make up the bulk of the PowerShares S&amp;P 500 Low Volatility Portfolio (NYSE: <a class="ticker" href="/stock/splv#NYSE">SPLV</a>) with a weighting of over 24 percent.  This sector is considered to be one of the most steadfast in terms of its base of established companies providing essential services to nearly every consumer in the country.

	Another way to play the utility sector is to consider a more global approach in the form of the iShares S&amp;P Global Utilities ETF (NYSE: <a class="ticker" href="/stock/jxi#NYSE">JXI</a>).  This ETF invests in a broader subset of 70 utility companies around the world.  The top country weightings include: United States, United Kingdom, and France.  One of the benefits of this ETF is that you get exposure to both domestic and international holdings in a single diversified investment vehicle. 

	Moving forward, utility stocks are likely going to be the beneficiaries of additional strength if we see further deterioration in small cap stocks, consumer discretionary names, and other high beta areas.  However, they are also susceptible to headwinds in the form of rising interest rates as the Fed begins to tighten monetary policy.  This tug of war should lend itself to further opportunities for tactical investors.

It is not hyperbole to say that a large percentage of investors that have invested in a utilities ETF have either done so with U.S.-focused products such as the Utilities Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xlu#NYSE">XLU</a>) or the Vanguard Utilities ETF (NYSE: <a class="ticker" href="/stock/vpu#NYSE">VPU</a>).

That has not been a bad idea. Over the past three years, a relevant time frame because utilities are long-term investments, XLU and VPU are up 42.8 percent and 44.5 percent, respectively, including dividends paid. Those returns have also been accrued with significantly lower volatility <a href="http://www.etfreplay.com/charts.aspx">than global utilities ETFs</a>.

Now might be the time to give global utilities funds a look with ETFs such as XLU trading at valuations that appear rich. Some analysts have noted international utilities ETFs are <a href="http://www.benzinga.com/analyst-ratings/analyst-color/12/10/3023586/some-dividend-sectors-not-as-pricey-as-they-appear">trading at noticeable discounts to U.S. rivals and their historical averages</a>. 

Two candidates to consider are the iShares S&amp;P Global Utilities Index Fund (NYSE: <a class="ticker" href="/stock/jxi#NYSE">JXI</a>) and the WisdomTree Global ex-US Utilities Fund (NYSE: <a class="ticker" href="/stock/dbu#NYSE">DBU</a>). Making this ETF Showdown all the more compelling are some significant differences between the two ETFs. For starters, "global" as it applies to JXI means U.S.-based utilities loom large in this ETF. Those stocks account for over 51 percent of JXI's weight.

On the other hand, DBU excludes U.S. utilities altogether. All told, DBU offers exposure to 26 countries. Ten countries account for over 95 percent of JXI' weight. Country exposure leads to another noteworthy difference between the two. JXI's top eight country weights are developed markets. Investors have to scroll down to the ninth-largest country weight, Brazil at just 1.3 percent, to find emerging markets exposure in that ETF.

Conversely, emerging markets loom large in DBU. Brazil is that ETF's largest country concentration at 10.4 percent. Overall, 11 developing nations are represented in DBU and they combine for about 32 percent of the fund's weight.

The trade-off in opting for DBU's emerging markets exposure is predictable. Investors end up embracing a more volatile fund. Over the past three years, DBU's volatility has been 22.3 percent, 410 basis points higher <a href="http://www.etfreplay.com/charts.aspx">than JXI's</a>. Perhaps by virtue of the added emerging markets exposure, DBU is also slightly more expensive than its iShares rivals in terms of fees. DBU charges 0.58 percent per year while JXI charges 0.48 percent.

Income investors might want to consider paying up DBU, though. That ETF has a 30-day SEC yield of 4.59 percent compared to 3.82 percent for JXI. One reason for DBU's higher yield likely comes by way of its weight to Brazil. Brazilian utilities have traditionally been among the best dividend payers in South America's largest economy.

There is a rub, though. Yields on Brazilian utilities are seen as rising for all the wrong reasons. Share prices have been falling recently on news the government is looking to implement stricter price controls, <a href="http://articles.marketwatch.com/2012-10-03/markets/34228825_1_utilities-group-cemig-eletropaulo">according to MarketWatch</a>.

JXI's has some strikes against, too. Namely valuation. The ETF's price-to-earnings ratio is almost 18, which is well above XLU's. So if XLU's looks sort of expensive, than JXI is quite expensive. 

The bottom line here is DBU and JXI each have some pros and cons. A draw is in order in this showdown with a nod to DBU for those that embrace risk. Risk-averse investors looking for some global utilities exposure should prefer JXI.

For more on dividend sector ETFs, click <a href="http://www.benzinga.com/analyst-ratings/analyst-color/12/10/3028115/s-p-bullish-on-select-dividend-etfs">here</a>.

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AXUT

iShares Trust Dow Jones US Utilities Sector Index Fund

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PowerShares ETF Trust Dynamic Utilities Portfolio

Rydex ETF Trust Rydex S&P Equal Weight Utilities ETF

Top 10 Utilities ETFs

By now, everyone and his sister knows that 2011 will go down as the year of the “risk off” trade. Of course that means that investors that were wise enough to turn their lights on to boring utilities stocks and ETFs this year have been handsomely rewarded. 

While the SPDR S&amp;P 500 (NYSE: <a class="ticker" href="/stock/spy#NYSE">SPY</a>) bounce back and forth between small year-to-date gains and losses, the SPDR Select Sector Utility (NYSE: <a class="ticker" href="/stock/xlu#NYSE">XLU</a>) is up almost 12% year-to-date. With a yield of almost 4%, XLU has been flirting with all-time highs this week and the ETF can certainly be characterized as “overbought” at this point.

Question is: Is there value left in utilities? Sure, but you need to know where to look and that means developing a global perspective with the iShares S&amp;P Global Utilities ETF (NYSE: <a class="ticker" href="/stock/jxi#NYSE">JXI</a>). The iShares S&amp;P Global Utilities ETF currently yields almost 4.3% and that's better than the 3.8% offered by XLU, but believe it or nor, JXI is actually down 5% year-to-date.

It's easy to see why and it underscores the fact that the iShares S&amp;P Global Utilities ETF might just be an example of the proverbial baby being thrown out with proverbial bathwater. Ten countries are featured in JXI and more than 48% of the ETF's weight is allocated to U.S. utilities, but another roughly 21% is allocated to Germany, France, Italy and Spain. 

Overall, JXI is home to 76 stocks, nearly $240 million in assets under management and an expense ratio of 0.48%. The ETF tracks the S&amp;P Global 1200 Utilities Sector Index. Not only does JXI beat XLU in terms of yield, it beats the Vanguard Utilities ETF (NYSE: <a class="ticker" href="/stock/vpu#NYSE">VPU</a>) as well.

In other words, there are some high points to JXI when you get past the Euro Zone exposure. So what investors are left with regarding JXI at this point is a double-edged sword: There is the value of a decent yield with an ETF that's offering some value in a sector where there's little value to be had right now.. However, there is that pesky Europe problem that seemingly won't go away.

Maybe the chart will help. Getting in around $42 on JXI should means you can stay in on the downside to $39. Adding in on a move above resistance at $44 would be advisable as well. From there, the $47-$49 area is a possibility for patient investors.

Bull case:
Investors realize JXI is a utilities play, not a Europe play and the risk off trade finds its way to this ETF. 

Bear case:
Investors focus on that 21% Euro Zone exposure, Europe's problems worsen and JXI tumbles below support at $39.

Under The Hood: Some Value Left In Utilities

By Josh Lipton
The next few weeks will see the first few companies reporting earnings for the final quarter of 2010 and, while analysts predict another impressive period of profit growth, expectations for the year ahead remain decidedly more muted.
This week, investors will hear the latest quarterly confessionals from Family Dollars Stores (<a class="ticker" href="/stock/fdo#">FDO</a>), Monsanto (<a class="ticker" href="/stock/mon#">MON</a>), and Constellation Brands (<a class="ticker" href="/stock/stz#">STZ</a>). Earnings season kicks off with Alcoa (<a class="ticker" href="/stock/aa#">AA</a>) reporting results on January 10.
Analysts think that companies in the S&amp;P 500 will report year-over-year earnings growth of 32% for the fourth quarter, according to Thomson Reuters. The Financials, Materials, and Energy sectors have the highest earnings growth rates for the quarter, while the Utilities sector is the only sector forecasting a decline in earnings compared to the year-ago period.
(To read Carol Kopp's article on which tablet to buy, <A href="http://www.minyanville.com/businessmarkets/articles/ces-ipad-tablet-android-galaxy-tab/1/4/2011/id/31974">click here</a>.
This represents the fifth consecutive quarter of gains following nine previous quarters of year-over-year earnings declines.
The estimated revenue growth rate for the S&amp;P 500 for the fourth quarter is 6%. All ten sectors anticipate revenue growth for the quarter. The Information Technology, Utilities, and Materials sectors have the highest revenue growth rates.
As of December 31, there have been 90 negative EPS pre-announcements issued by corporations for the fourth quarter compared to 46 positive EPS pre-announcements. That 2.0 ratio of negative to positive pre-announcements is equal to the long-term norm.
All together, S&amp;P 500 companies are forecast to earn $21.74 a share in the fourth quarter, according to Thomson Reuters. That brings full-year forecasts to $84.58 a share, which marks a headline-grabbing 37.8% gain from 2009 ($60.80).
However, looking ahead, the pace of profit growth is expected to slow.
(To see Chris Dixon's article on what's next for big media, <A href="http://www.minyanville.com/businessmarkets/articles/future-of-media-future-media-new/1/3/2011/id/31963">click here</a>.)
“2010 was an aberration because 2009 was so weak,” says BTIG's Mike O'Rourke. “So we had a big snap-back. But now growth has to slow. You just can't keep growing at 30% per year.”
Specifically, for 2011, analysts spin their spreadsheets and expect corporate America to earn a record $95.97 a share. That will represent an impressive but less dramatic gain of 13.4%. Professional prognosticators have in fact been trimming their estimates: in April, they had predicted earnings growth in 2011 of 20.9%.
<blockquote>“I would imagine that, in 2011, corporate profits will be quite good due to massive monetary and fiscal stimulus along with no real disruptions for the global growth story,” says Vinny Catalano, president of Blue Marble Research. “However, in the second half of the year, the growth rate will slow down. The key will be whether the US economy is able to wean itself off these government programs. I remain doubtful.”</blockquote>
(To view Kevin Depew's piece on five things you need to know on inflation and deflation, <a href="http://www.minyanville.com/businessmarkets/articles/the-economy-inflation-deflation-inflation-vs/1/3/2011/id/31952">click here</a>.)
Catalano continues to eyeball opportunity across the pond. He invests in global materials through iShares S&amp;P Global Materials (<a class="ticker" href="/stock/mxi#">MXI</a>) as well as global utilities through iShares S&amp;P Global Utilities (<a class="ticker" href="/stock/jxi#">JXI</a>), a sector which he's betting will benefit from continued spending by emerging market governments.
How does valuation look? The S&amp;P 500 is trading at 22.1 times its earnings over the past 12 months and 13.3 times expected 2011 earnings. The long-term average multiple, strategists note, is 16 times.
However, other gauges tell a different tale: the Shiller P/E ratio -- which uses a 10-year average of inflation adjusted earnings -- points to a market that's now overvalued by some 30%.
In 2011, the Materials sector is expected to lead the pack, with earnings growth of 30.8%, followed by Financials (20.6%), Industrials (17.9%), Consumer Discretionary (15.4%) and Energy (14.2%).
To read the rest, <a href="http://www.minyanville.com/businessmarkets/articles/earnings-report-profit-growth-bull-market/1/4/2011/id/31968">head over to Minyanville</a>.

iShares S&P Global Materials Sector Index Fund

Earnings Season Kicks Off

According to an article in SmartMoney, dividend had lost flavor with investors in the 1980s, when they started favoring stocks that offered returns through share buybacks. The extent of the diminishing importance of dividend as the deciding factor for investors can be seen from the fact that returns from dividends in the 1990s fell to just 14%, from 50% in the 1970s.
Dividends can sometimes act as a trap. However, they can significantly impact returns, especially when compounded over time. Data from the CBOE and Bloomberg indicates that while an investment of $1 in the S&amp;P 500 index in 1970 grew to $12.89 by November 30, 2009 based on price alone, the return worked out to be $45.74 when dividend was reinvested.
Some of the high paying electric and natural gas utility stocks are EQT Corporation (NYSE: <a class="ticker" href="/stock/eqt#NYSE">EQT</a>), Black Hills (NYSE: <a class="ticker" href="/stock/bkh#NYSE">BKH</a>), Northeast Utilities (NYSE: <a class="ticker" href="/stock/nu#NYSE">NU</a>) and Great Plains Energy (NYSE: <a class="ticker" href="/stock/gxp#NYSE">GXP</a>). Some funds, such as iShares S&amp;P Global Utilities (NYSE: <a class="ticker" href="/stock/jxi#NYSE">JXI</a>), PowerShares Dynamic Utilities (NYSE: <a class="ticker" href="/stock/pui#NYSE">PUI</a>), iShares S&amp;P Global Utilities (NYSE: <a class="ticker" href="/stock/jxi#NYSE">JXI</a>) and PowerShares Dynamic Utilities (NYSE: <a class="ticker" href="/stock/pui#NYSE">PUI</a>), also stand out in terms of returns.

Time To Give Dividend Its Due Importance

iShares Global Utilities ETF declares semi-annual distribution of $1.1350

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ERH: Utilities Are Struggling, But This CEF May Work As A Fixed-Income Alternative

Utility stocks should benefit from any rate cuts that occur over this year. This fund provides a great way to get exposure to these companies along with a very attractive 8% yield while waiting for the story to play out.

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Latest News for iShares Global Utilities ETF (ARCA:JXI)

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