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ETFs to Buy as Utilities Are Favored Amid Virus Scare

Sweta Jaiswal, FRM

The coronavirus eruption is showing no signs of dying down. The outbreak has already claimed more than 300 lives in China, with Philippines being the first nation outside China to claim a fatality. China alone has reported 17,205 confirmed cases. The figure for confirmed cases is rising globally, with the United States, India, Vietnam and others reporting new cases.

The rising tensions are causing investors to seek refuge in safer investment options, with the utility sector grabbing major attention.The sector is among the most stable for the long term as its players are likely to offer decent returns, irrespective of market conditions. It is known for its non-cyclical nature and often acts as a safe haven for investors during erratic stock market conditions. Moreover, utilities act as a defensive option to stay invested in more rewarding equity markets (read: (read: 5 ETFs to Protect Your Portfolio From Coronavirus Threat).

It has been observed that since the announcement of the first coronavirus case in the United States on Jan 21, the S&P 500 Utilities (Sector) index has returned 3.2%. In fact, delivering its best monthly gain since 2016 and outperforming other 10 S&P 500 sectors, the index gained 6.6% in January. Meanwhile, other safe-haven picks like gold gained 1.8% in the same period, while the Japanese yen witnessed a 1.6% gain along with the ICE BofA US Treasury Index’s 2% increase (read: Best & Worst ETFs of Coronavirus-Affected January).

Moreover, the aggravating coronavirus outbreak is leading to flattening of the yield curve due to narrowing short-term and long-term U.S. Treasury yields. Furthermore, the virus is causing serious damage to trade and tourism, which is likely to slow down U.S. economy growth along with the global economy. Per investment bank Goldman Sachs, coronavirus will affect China’s economic growth by 0.4% in 2020. It also anticipates first-quarter 2020 economic growth in the United States to face a 0.4% impact. These factors are also encouraging investors to flock to the high-yielding utilities sector.

Utility ETFs to Grab

Against this backdrop, investors can take a look at the following ETFs:

The Utilities Select Sector SPDR Fund XLU — up 7.9% in the past month

The fund tracks the Utilities Select Sector Index. It comprises a basket of 28 holdings. The fund has an AUM of $11.82 billion and expense ratio of 0.13%. It has a Zacks Rank #2 (Buy) and a Medium risk outlook (read: 5 Sector ETFs That Crushed the Market in January).

Vanguard Utilities ETF VPU — up 7.4%

The fund tracks the MSCI US Investable Market Utilities 25/50 Index and includes stocks of companies that distribute electricity, water, or gas, or that operate as independent power producers. It comprises a basket of 68 holdings. The fund has an AUM of $4.76 billion and expense ratio of 0.10%. It has a Zacks Rank #2 and a Medium risk outlook (read: 5 Winning ETF Strategies for 2020).

iShares U.S. Utilities ETF IDU — up 7.5%

This ETF tracks the Dow Jones U.S. Utilities Index. It holds 48 stocks in its basket and has 0.43% in expense ratio. It has accumulated $1.02 billion in its asset base. It has a Zacks Rank #3 (Hold) with a Medium risk outlook.

Fidelity MSCI Utilities Index ETF FUTY — up 7.4%

This fund provides exposure to 67 utilities stocks with AUM of $1.02 billion. This is done by tracking the MSCI USA IMI Utilities Index. The ETF has 0.08% in expense ratio. It has a Zacks Rank #2 with a Medium risk outlook.

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iShares U.S. Utilities ETF (IDU): ETF Research Reports
 
Vanguard Utilities ETF (VPU): ETF Research Reports
 
Utilities Select Sector SPDR ETF (XLU): ETF Research Reports
 
Fidelity MSCI Utilities Index ETF (FUTY): ETF Research Reports
 
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