- By Phillip Ekuwem
- Feb 08, 2023
There are a ton of great utility ETFs on the market right now, many of which pay out great dividends while also tracking a high-performing equity index. But what are some of the best to buy now? Below is a comprehensive look at 11 of them;
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Best Utility ETFs
Utilities Select Sector SPDR Fund (NYSEARCA: XLU)
Issued by State Street Global Advisors, the Utilities Select Sector SPDR Fund is the largest utilities exchange-traded fund on the market, with roughly $16.54 billion worth of assets under its management.
This ETF seeks to achieve the results of the Utilities Select Sector Index through its replication method.
It invests in stocks of companies that operate within the utility sector and is managed by SSGA Fund Management.
XLU has 31 holdings, including NexEra Energy Inc, Duke Energy Cop, and Southern Co.
The fund offers its investors an annual dividend payout of $2.06 with a yield of 2.90%, and it has an expense ratio of 0.10%.
Vanguard Utilities ETF (NYSEARCA: VPU)
Vanguard Utilities ETF is an exchange-traded fund created in 2004 and domiciled in the United States.
With its focus firmly set on investing in utility company stocks, the fund aims to track the MSCI US Investable Market Index’s performance and apply a replication strategy to record similar results.
This index is primarily made up of small and large companies in the United States utility sector.
The fund has an expense ratio of 0.10% and is trading at roughly $155 as of January 2023.
Investors stand to benefit from its annual dividend payout of $4.58, with a dividend yield of 2.96%. Vanguard Utilities also records total assets under management worth $5.75 billion.
Fidelity MSCI Utilities Index ETF (NYSEARCA: FUTY)
Fidelity MSCI Utilities Index ETF is an exchange-traded fund that invests at least 80% of its assets in companies that operate within its underlying index, which is the MSCI USA IMI Utilities 25/50 Index.
The fund invests in various companies in the utility sector and has total assets under management worth $2.14 billion.
Its major holdings are in NextEra Energy Inc, Duke Energy Corp, and Southern Co, along with 63 other holdings.
FUTY has an expense ratio of 0.08%, and investors gain an annual dividend payout of $1.24 with a fair yield of 2.68%.
iShares U.S. Utilities is an ETF with its claws firmly sunk into the United States utility sector.
It was launched and is currently being managed by BlackRock Inc, which is arguably the biggest asset management company in the world.
IDU applies the representative sampling technique to track the results of the Russell 1000 Utilities RIC 22.5/45 Capped Index.
Generally, at least 80% of the fund’s assets will be represented in its underlying index, but the fund also invests in other securities in the same sector.
iShares U.S. Utilities ETF currently boasts a total returns growth of 3.28%.
The fund has an expense ratio of 0.39% and $1.1 billion in total assets under management.
As of January, it is trading at roughly $87 and offers investors a dividend rate of $2.07 with a yield of 2.36%.
Invesco S&P 500 Equal Weight Utilities ETF (NYSEARCA: RSP)
Invesco S&P 500 Equal Weight Utilities ETF is an exchange-traded fund that tracks the results of the S&P 500 Equal Weight Index as closely as possible.
Domiciled in the United States, the ETF was issued and is managed by Invesco Capital Management LLC.
RSP invests at least 90% of its assets in utility company stocks in its underlying index.
The fund has an expense ratio of 0.20% and, as of January, is trading at $145. It has total assets under management of $33.69 billion with 505 holdings.
The ETF also yields dividends with an annual payout of $2.57.
First Trust Utilities AlphaDEX Fund (NYSEARCA: FXU)
The First Trust Utilities AlphaDEX Fund is an exchange-traded fund that invests in stocks of companies in the utility sector. The fund was issued and is run by First Trust Advisors LP.
Its goal is to track and replicate the results of the StrataQuant Utilities Index as closely as possible. It does this by investing 90% of its total assets in the common stocks of its underlying index.
FXU has 42 holdings, with its majority in UGI Corp, Avangrid Inc, NGR Energy Inc, and OGE Energy Corp. This brings its total assets under management to $371.50 million and an expense ratio of 0.64%.
With 88% of its holdings in utilities, First Trust Utilities AlphaDEX Fund pays an annual dividend payout of $0.67 with a yield of 2.01%.
First Trust EIP Carbon Impact ETF (NYSEARCA: ECLN)
First Trust EIP Carbon Impact ETF is another exchange-traded fund launched and run by First Trust Advisors LP in conjunction with Energy Income Partners LLC.
ECLN invests its assets in the stock of companies in the utility and energy sectors.
And 80% of its total assets go to investments in the securities of companies with positive carbon emissions as decided by the funds’ investment advisor.
With 50 holdings and 75% of its portfolio in utilities, First Trust EIP Carbon Impact has $34.76 million worth of assets under its management.
The fund has an expense ratio of 0.95%, and holders stand to gain a dividend payout of $0.44 and a dividend yield of 1.70%.
iShares Global Utilities is an ETF modeled after the S&P Global 1200 Utilities (Sector) Capped Index and aims to track its performance by applying its replication technique.
JXI invests 80% of its assets in company securities that operate under its benchmark index. It also invests 20% of its assets in options, cash swaps, and futures.
Its total assets under management are at $149.15 million, with an expense ratio of 0.42%.
In addition to its low expense ratio, iShares Global Utilities ETF also offers its investors dividends with an annual payout of $1.89 and a yield of 3.08%.
Invesco DWA Utilities Momentum ETF (NASDAQ: PUI)
Invesco DWA Utilities Momentum is an ETF keen on replicating the results of the Dorsey Wright Utilities Technical Leaders Index as closely as possible.
The fund was created by Invesco Capital Management LLC in 2005 and managed by them.
PUI invests its assets in several companies active in the utility sector.
Its portfolio comprises 39 holdings, with 93.65% in utilities.
The ETF has total assets under management of $47 million, and holders receive dividends with an annual payout of $0.74 and a dividend yield of 2.14%.
Virtus Reaves Utilities ETF (NYSEARCA: UTES)
Virtus Reaves Utilities ETF is an ETF that was created by Virtus ETF Advisers LLC and is managed in conjunction with W.H. Reaves & Co.
The fund tries to model its performance after the S&P 500 Utilities Index.
UTES does this by investing 80% of its assets into utility companies that the fund manager deems worth investing in.
One major criteria the fund manager tends to consider is if a company generates at least 50% of its revenue from gas, electricity, or water utilities.
The ETF trades at roughly $47 as of January 2023 and has total assets under management of $45.13 million.
Its portfolio has 23 holdings, with major holdings in NextEra Energy Inc (21%), Public Service Enterprise Group Inc, Edison International, and DTE Energy Co.
Holders stand to earn an annual dividend of $1.24 with six years of growth and a dividend yield of 2.60%.
Direxion Daily Utilities Bull 3X Shares is an exchange-traded fund seeking to track 3x (three times) the results of the Utilities Sector Index.
It was created in 2017 by Direxion Investments, and it’s managed by Rafferty Asset Management LLC.
Looking at its financials, UTSL is trading on the NYSEARCA at roughly $34 as of January. This is backed with total assets under management worth $17.54 million.
The fund has an expense ratio of 0.96%, with dividends to earn. Holders can gain an annual dividend payout of $0.39 and a dividend yield of 1.11%.
ProShares Ultra Utilities is an exchange-traded fund launched by ProShare Advisors LLC.
It seeks to benchmark 2x (two times) the Dow Jones U.S. Utilities Index results. The fund is designed to gauge the results of companies in the US utility sector.
UPW has an expense ratio of 0.95% and reports around $13.95 million in total assets under management.
Holders stand a chance to earn dividends with an annual dividend rate of $1.08 and a yield of 1.51%.
It has 58 holdings, including DJ U.S. Utilities Index Swap Bank of America and NextEra Energy Inc. As of January, it is roughly priced at $71.
Are Utility ETFs a Good Investment?
The utility sector is home to companies that provide essential everyday services to people, such as electricity, natural gas, water, etc.
Unlike most sectors typically affected by market swings and volatility, the utility sector tends to operate with a mind of its own because its companies are always in demand due to how essential their services are.
After all, it doesn’t matter if we’re in a bull or bear market, people are still going to need running water, and they’re still going to need electricity to power their homes.
That’s why the utility industry is an objectively great place to put your money.
If you’d like to gain exposure to the utility sector without betting on individual stocks, then utilities exchange-traded funds represent your best option.
Especially the ETFs that have low management fees and experienced managers behind them.
They represent an attractive option for investors looking to optimize their portfolios for diversification, regulatory stability, and tax efficiency.
It’s also worth noting that utility ETFs are not subject to the same level of volatility as other equity investments, providing investors with a greater degree of protection.
Furthermore, due to the structure of utility ETFs, investors can utilize them to reduce their capital gains tax liability.
In other words, if your investment objective is centered around receiving dividends while keeping your portfolio safe from volatility, then it can be said that utility ETFs are suitable investments.
However, it’s important to note that all forms of investing involve risk, hence, you should only invest your money in ETFs that you’ve thoroughly researched to avoid incurring significant losses.
FAQs
Are There Utility ETFs?
Yes, there are various utility ETFs you can invest in on the market. These ETFs are generally more stable than other ETFs due to the reduced volatility of the utility industry. They also offer attractive dividend yields, which makes a good investment from an income point of view.
What Utility Company Does Warren Buffet Own?
Warren Buffet owns Berkshire Hathaway Energy, a big utility company 91% owned by the Oracle of Omaha’s investment firm, Berkshire Hathaway. It is a major player in the utility space with a huge stream of renewable power.
Should I Invest In Utilities Now?
Because utilities are crucial for day-to-day living, utility stocks and ETFs tend to maintain a good market price, even amid economic downturns. Hence, investing in utilities is never a bad idea, mainly because they pay healthy dividends.
What Are Five Examples Of Utilities?
There are a ton of utilities out there, but five common examples are water, electricity, recycling, sewer, and gas. In recent times, tech-based subscription services such as internet, cable TV, and phone services have also grown to be considered utilities in today’s world due to how essential they are to everyday life.
