Utilities provide essential services with steady demand across economic cycles. Utility ETFs offer portfolio stability, as they can pass inflation costs to consumers and typically provide low volatility and consistent returns, acting as a safeguard during downturns.
Therefore, investors may consider adding top utility ETFs like Fidelity MSCI Utilities Index ETF (FUTY), Vanguard Utilities Index Fund ETF Shares (VPU), and The Utilities Select Sector SPDR Fund (XLU) for stability and protection.
The demand for utilities, especially clean energy, is set to surge in the coming decades. As essential service providers, utilities offer reliable revenue streams and consistently outperform other sectors with steady net inflows and strong returns. The sector is also benefiting from the growth of AI and cloud computing. The global utilities market is projected to grow at a CAGR of 6.4%, reaching $8.83 trillion by 2028.
Essential services like electricity and water ensure steady demand. With economic growth projected at 2.7% for 2024, according to IEA, global electricity demand is set to grow by 4% in 2025, up from 2.5% in 2023. This marks one of the highest levels of power demand growth in decades, driven by economic expansion and rising data center needs.
On top of it, utility ETFs offer stability due to their consistent revenue from long-term contracts and high dividends. Their performance benefits from lower interest rates, attracting income-seeking investors and providing protection against broader market fluctuations. Given this backdrop, let’s evaluate the three Utility ETFs picks, starting with number three.
ETF #3: Fidelity MSCI Utilities Index ETF (FUTY)
FUTY is an exchange-traded fund launched and managed by Fidelity Management & Research Company LLC, and co-managed by BlackRock Fund Advisors. It invests in the public equity markets of the United States, focusing on stocks of companies within the utilities sector. The fund invests in growth and value stocks across diversified market capitalizations. It seeks to track the performance of the MSCI USA IMI Utilities 25/50 Index using a representative sampling technique.
With $1.69 billion in assets under management (AUM), FUTY’s top holding is NextEra Energy, Inc. (NEE) with an 11.85% weighting, followed by Southern Company (SO), with a 7.27% weighting, and Duke Energy Corporation (DUK), with 6.55%. It has a total of 70 holdings.
It has an expense ratio of 0.08%, lower than the category average of 0.44%. It currently has a NAV of $51.73. FUTY’s fund inflows came in at $50.95 million over the past year.
The ETF pays an annual dividend of $1.39, which yields 2.69% on the current price. It has a four-year average dividend yield of 2.97%. FUTY’s dividend payouts have increased at a CAGR of 4.3% over the past five years.
FUTY has gained 31.1% over the past nine months and 30.2% over the past year to close the last trading session at $51.78.
FUTY’s POWR Ratings reflect this promising outlook. FUTY’s overall A rating equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
FUTY has an A grade for Buy & Hold and Trade. Of the 13 ETFs in the B-rated Utility ETFs group, it is ranked #3. Click here to access all of FUTY’s POWR Ratings.
ETF #2: Vanguard Utilities Index Fund ETF Shares (VPU)
VPU is an exchange-traded fund launched and managed by The Vanguard Group, Inc. The fund invests in the public equity markets of the United States, specifically in stocks of companies operating across the utilities sector. It invests in both growth and value stocks of companies with diversified market capitalizations. The fund seeks to track the performance of the MSCI US Investable Market Index (IMI)/Utilities 25/50 by using a full replication technique.
With $6.51 billion in AUM, the fund has a total of 67 holdings. VPU’s top holding is NEE with a 12.79% weighting, followed by SO with a 6.98% weighting, and DUK with 6.55%.
VPU has an expense ratio of 0.10%, lower than the category average of 0.44%. It currently has a NAV of $173.60. Its fund inflows came in at $532.47 million over the past year.
The fund’s annual dividend of $4.96 yields 2.86% on the current share price. Its four-year average yield is 3.08%. Its dividend payouts have increased at a CAGR of 3.4% over the past three years and 5.1% over the past five years.
VPU has gained 31.1% over the past nine months and 29.8% over the past year to close the last trading session at $173.77.
VPU’s strong outlook is reflected in its POWR Ratings. The ETF has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has an A grade for Buy & Hold and Trade. It is ranked #2 in the same group. To access all the POWR Ratings for VPU, click here.
ETF #1: The Utilities Select Sector SPDR Fund (XLU)
XLU is an exchange-traded fund launched by State Street Global Advisors, Inc. It is managed by SSGA Funds Management, Inc. It invests in the public equity markets of the United States, specifically in stocks of companies operating across the utilities sector. It invests in both growth and value stocks of companies with diversified market capitalizations. The fund seeks to track the performance of the Utilities Select Sector Index by using a full replication technique.
With $16.59 billion in assets under management (AUM), XLU’s top holding is NEE with a 12.95% weighting, followed by SO, with a 7.95% weighting, and DUK, with 7.16%. It has a total of 34 holdings.
XLU has an expense ratio of 0.09%, lower than the category average of 0.44%. It currently has a NAV of $80.43. Its fund inflows came in at $1.38 billion over the past six months.
The ETF pays an annual dividend of $2.21, which yields 2.75% on the current price. It has a four-year average dividend yield of 3.07%. Its dividend payouts have increased at a CAGR of 3.8% over the past three years and 3.4% over the past five years.
XLU has gained 29.6% over the past year and 31.5% over the past nine months to close the last trading session at $80.49.
XLU POWR Ratings reflect its promising prospects. The ETF’s overall A rating equates to a Strong Buy in our proprietary rating system.
XLU has an A grade for Buy & Hold and Trade. In the Utility ETFs group, it is ranked first. Click here to access all of XLU’s POWR Ratings.
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XLU shares rose $0.19 (+0.24%) in premarket trading Thursday. Year-to-date, XLU has gained 30.56%, versus a 25.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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