According to the U.S. Bureau of Labor Statistics, inflation surged 8.5% year-over-year in July, lower than the consensus estimates. The stock market rejoiced on the news, with the S&P 500 gaining 2.1% in the last trading session, its highest since May 2022, while the tech-heavy Nasdaq Composite rose 2.9% to 12,854.80, marking its best close since late April.
Consequently, the probability of the Fed hiking rates by 75 bps in September slid to 37%, while the possibility of a 50 bps hike climbed to 63%.
Aneta Markowska, the chief economist at Jefferies, believes that cooling prices could substantially loosen the Fed’s monetary tightness and improve overall macroeconomic conditions. “Things are moving in the right direction. This is the most encouraging report we’ve had in quite some time,” she said regarding the latest CPI data.
Given the backdrop, quality no-brainer ETFs Utilities Select Sector SPDR Fund (XLU), Vanguard Utilities Index Fund (VPU), SPDR S&P Dividend ETF (SDY), JPMorgan Ultra-Short Income ETF (JPST), and Fidelity MSCI Utilities Index ETF (FUTY) could be solid additions to your portfolio now.
Utilities Select Sector SPDR Fund (XLU)
XLU is a popular choice for investors seeking exposure to the U.S. utility sector, renowned for relatively low volatility and relatively high distribution yields. It includes securities of companies from the electric utilities, water utilities, multi-utilities, independent power, renewable electricity producers, and gas utilities industry.
With $16.93 billion in assets under management (AUM), XLU’s top holdings include NextEra Energy, Inc. (NEE), with a 16.46% weighting in the fund, followed by Duke Energy Corporation (DUK) at 8.00%, and Southern Company (SO) at 7.82%. It currently has 30 holdings in total. Over the past year, the ETF’s net inflows were $2.17 billion. In addition, its 0.10% expense ratio compares favorably to the 0.42% category average.
XLU pays a $2.03 annual dividend, which yields 2.70% at the prevailing share price. Its four-year average dividend yield stands at 3.07%. Its dividends have increased at a 3.1% CAGR over the past three years and 3.6% over the past five years. Over the past year, XLU has gained 11.5%.
It is no surprise that XLU has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system.
In addition, it has an A grade for Trade and Buy & Hold and a B grade for Peer. XLU is ranked first among 13 ETFs in the A-rated Utility ETFs group. Click here to see all the XLU ratings.
Vanguard Utilities Index Fund (VPU)
VPU offers exposure to the domestic utility sector, historically exhibiting low volatility with frequent attractive distribution yield. It is ideal for investors looking to establish a shorter-term tactical tilt rather than long-term, buy and hold investors.
The fund has $5.99 billion in AUM. Its top holdings include NEE with a 13.37% weighting, DUK with 7.25%, and SO with 6.65%. In addition, it has 67 holdings in total.
Its net inflows came in at $41.89 million over the past month. Its 0.10% expense ratio compares favorably to the 0.42% category average.
VPU pays a $4.35 annual dividend, which yields 2.66% at the prevailing share price. Its average four-year dividend yield stands at 3.00%. In addition, its dividends have increased at a 3.9% CAGR over the past three years and 3.5% over the past five years. Over the past year, VPU has gained 10.9%.
VPU’s POWR Ratings reflect solid prospects. It has an overall A rating, equating to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Trade, Buy & Hold, and Peer. VPU is ranked #2 in the Utility ETFs group. Click here to see all of VPU’s ratings.
SPDR S&P Dividend ETF (SDY)
SDY is associated with the S&P High Yield Dividend Aristocrats Index, which offers exposure to dividend-paying large-cap companies exhibiting value characteristics within the U.S. equity market.
SDY has $22.10 billion in AUM. Its top holdings include Franklin Resources, Inc. (BEN) with a 1.86% weighting, Leggett & Platt, Incorporated (LEG) at 1.80%, and Walgreens Boots Alliance, Inc. (WBA) with 1.75%. In addition, it has 121 holdings in total. Its net inflows came in at $2.04 billion over the past year. Its 0.35% expense ratio compares favorably to the 0.49% category average.
SDY pays a $3.35 annual dividend, which yields 2.65% at the prevailing share price. Its average four-year dividend yield stands at 2.88%. In addition, its dividends have increased at an 11.5% CAGR over the past three years and 8.6% over the past five years. Over the past month, the fund has gained 5.8%.
SDY’s POWR Ratings reflect solid prospects. It has an overall A rating, equating to a Strong Buy in our proprietary rating system. In addition, it has an A for Trade, Buy & Hold, and Peer grades. SDY is ranked #3 out of 86 stocks in the A-rated Large Cap Value ETFs group. Click here to see all of SDY’s ratings.
JPMorgan Ultra-Short Income ETF (JPST)
JPST invests in short-term investment-grade debt and may be suitable for investors looking for a relatively safe way to collect additional yields from brokerage sweep accounts, money market funds, or long-term Treasuries.
The U.S. Dollar has a 35.13% weighting in the fund as its top holding, followed by FIXED INCOME (UNCLASSIFIED) at 2.13%, and Nordea Bank AB (New York) FRN 23-DEC-2022 at 0.90%. JPST has $20.43 billion in AUM. It has 549 total holdings. In addition, its net inflows were $3.14 billion over the past year. The fund’s 0.18% expense ratio is lower than the 0.64% category average.
JPST pays a $0.42 dividend annually, yielding 0.84% at the current price. Its four-year average dividend yield stood at 1.71%. In addition, its dividends have increased at a 43% CAGR over the past five years. The fund has gained marginally over the past month.
JPST has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. It is also rated A for Trade, Buy & Hold, and Peer grades. Click here to get all the JPST ratings. It is ranked #2 out of 32 ETFs in the A-rated Ultra-Short Term Bonds group.
Fidelity MSCI Utilities Index ETF (FUTY)
FUTY is another index of U.S. utility stocks. The fund’s underlying index is the MSCI USA IMI Utilities 25/50 Index, which represents the performance of the utility sector in the U.S. equity market. FUTY owns more than 60 companies, including small caps.
The ETF has $2.21 billion in AUM. Its top holdings are NEE with a 14.25% weighting, followed by DUK at 6.96%, and SO at 6.79%. It has a total of 68 holdings. Its net inflows were $956.43 million over the past year, while its 0.08% expense ratio is lower than the 0.42% category average.
FUTY pays a $1.21 dividend annually, yielding 2.50% at the current price. Its four-year average yield amounts to 2.94%. Moreover, the fund’s dividends increased at a CAGR of 2.8% over the past three years and 2.4% over the past five years. FUTY has gained 11.1% over the past year.
FUTY's overall A rating equates to a Strong Buy in our POWR Ratings system. The ETF has an A grade for Trade, Buy & Hold, and Peer. It is ranked #3 in the Utility ETFs group. Click here for all the FUTY ratings.
XLU shares rose $0.25 (+0.33%) in premarket trading Thursday. Year-to-date, XLU has gained 7.03%, versus a -10.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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