The utilities sector is one of the smallest sector weights in the S&P 500, but it is still beloved by conservative investors seeking higher dividend yields and lower volatility. Fortunately, there are dozens of ETFs dedicated to this sector.
For tactical traders and investors looking for entry points into utilities ETFs, this week is an interesting time for the sector. This week, over 43% of the S&P 500 Utilities Index reports first-quarter earnings, meaning this could be an eventful span for an array of utilities ETFs. The earnings spotlight dims somewhat next week for utilities, but more than 18% of the aforementioned utilities gauge reports earnings during the week of May 6.
To this point in earnings seasons, “six of the eleven sectors are reporting year-over-year growth in earnings, led by the Health Care and Utilities sectors,” said FactSet.
The Utilities Select Sector SPDR (NYSEARCA:XLU) is the largest utilities ETF and a fine option in its own right, but let’s explore some other utilities ETFs here.
Fidelity MSCI Utilities ETF (FUTY)
Expense ratio: 0.084% per year, or $8.40 on a $10,000 investment.
While the aforementioned XLU is the largest utilities ETF, the Fidelity MSCI Utilities ETF (NYSEARCA:FUTY) is the cheapest fund dedicated to this sector. FUTY tracks the MSCI USA IMI Utilities Index and has nearly $635 million in assets under management. FUTY holds 67 stocks, giving it a deeper bench than some rival, large-cap utilities ETFs.
This utilities ETF’s top 10 holdings combine for nearly 53% of the fund’s weight and include Nextera Energy (NYSE:NEE), Duke Energy (NYSE:DUK) and Dominion Energy Inc. (NYSE:D). Fidelity clients can realize addition cost benefits with FUTY because this utilities ETF is part of the firm’s expansive commission-free lineup.
“Utilities are usually considered a safe choice with stable returns, unlike the tech companies that have been driving most of the stock market’s growth over the past decade,” reports Evie Liu for Barron’s. “But as the market pulled back significantly last year, even steady gains can become top-notch performance.”
S&P Capital IQ has a Marketweight rating on the utilities sector while Ned Davis Research has an Overweight rating on the group.
Invesco DWA Utilities Momentum ETF (PUI)
Expense ratio: 0.60%
Utilities ETFs are usually seen as low beta fare, but there are ways to bring some spice to the group. That includes the Invesco DWA Utilities Momentum ETF (NASDAQ:PUI), which eschews the cap-weighted methodology associated with many traditional utilities ETFs.
PUI, which carries a four-star Morningstar rating, follows the Dorsey Wright Utilities Technical Leaders Index. That index “is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 securities from the NASDAQ US Benchmark Index. Relative strength is the measurement of a security’s performance in a given universe over time as compared to the performance of all other securities in that universe,” according to Invesco.
The average market value of PUI’s 30 holdings is $16.88 billion, putting it at the lower end of utilities ETFs by that metric. Nearly 61% of this utilities ETF’s holdings are classified as large- and mid-cap value stocks. None of the fund’s holdings exceed weights of 3.90%, which is also low compared to traditional utilities ETFs.
First Trust Utilities AlphaDEX Fund (FXU)
Expense ratio: 0.63%
Somewhat quietly, the First Trust Utilities AlphaDEX Fund (NYSEARCA:FXU) is home to over $908 million in assets under management, making it the third-largest US-listed utilities ETF. Like the aforementioned PUI, FXU is a smart beta utilities ETF, not a cap-weighted fund. FXU, which soon turns 12 years old, tracks the StrataQuant Utilities Index.
Components in FXU’s underlying index are measured based “on growth factors including three, six and 12-month price appreciation, sales to price and one year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets,” according to First Trust.
Even with its unique methodology, this utilities ETF has a decent dividend yield of 2.35%. However, historical data indicate FXU has struggled to beat traditional utilities ETFs over long holding periods, indicating its high fee is hard to justify for long-term investors.
Todd Shriber does not own any of the aforementioned securities.
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