Utility investments are at the conservative end of investing. Most investors buy them for the steady dividends and lower market volatility. This feature hasn’t changed much.
There is currently an expanding list of 24 ETFs oriented to the utility and infrastructure sector with more on the way. The following analysis features a fair representation of ETFs available. We believe from these investors may choose an appropriate ETF to satisfy the best index-based offerings individuals and financial advisors may utilize.
Currently utilities are under significant regulatory and macro-economic pressure. From a regulatory view most utilities need a more contemporary grid but the climate is uncertain given a wide variety of local issues from communities.
Atop this are fuel issues including whether to upgrade older plants with cheap and readily available coal, natural gas, oil or nuclear. Hydro-electric systems seem completely stopped from an environmental view and most available sources have been tapped. Nuclear power seems safe enough for new plants but with an old Fukushima plant and disaster in the publics’ mind these seem an unlikely source unfortunately. Oil powered utilities are more acceptable but fuel costs are high. Alternative (green) energy is still unavailable in the amount necessary and is more costly. The best bet is natural gas as an intermediate source if fracking controversies can be satisfied and overcome.
Another drag on public utilities is the economic climate. When the economy slows power use drops as well. Perhaps the best example is the high number of vacant homes in the U.S. currently with unused meters.
ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones, Wisdom Tree, PowerShares, EG Shares and so forth. Also included are some so-called “enhanced” indexes that attempt to achieve better performance through more active management of the index. Investors should note the holdings we have listed and compare one issue to another in this regard.
We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.
For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.
AXUT follows the MSCI All Country World ex-USA Utilities Index which is a market cap weighted index of developed and emerging market countries. The fund was launched in July 2010. The expense ratio is .48%. AUM equal $2.2 million and average daily trading volume is only 1K shares. As of mid-February 2012 the annual dividend yield was 4.66% and YTD return 7.61%. The one year return was -14.83%
With a fund this young but with a sponsor this big you would intuitively believe the fund has a better chance of succeeding versus with a smaller sponsor. Much of the poor growth is due to much unsettled economic issues globally.
Data as of First Quarter 2012
AXUT Top Ten Holdings & Weightings
E.ON Aktiengesellschaft (EOAN): 6.77%
National Grid PLC (NG.): 6.12%
GDF Suez (GSZ): 5.93%
ENEL EnteNazionale per L'EnergElet SPA (ENEL): 4.69%
RYU follows the S&P Equal Weight Index which is not much different from XLU except that by breaking components into equal weights provides a different and perhaps fairer view of overall conditions. The fund was launched in January 2006. The expense ratio is .50%. AUM equal $49 million and average daily trading volume is 17K shares. (NOTE: The sponsor has suffered numerous ownership changes and marketing efforts have been hindered. The structure of the index is sound but the liquidity and fees are still higher than average.)
Remember the advantage of an equal weighted index-based ETF is an investor won’t be hurt by a bad situation in one but won’t be helped by a better performer either. As of mid-February 2012 the annual dividend yield was 3.40% and YTD return -1.98%. The one year return was 8.15=4%
DBU follows the WisdomTree Global ex-US Utility Index which follows utility equities from emerging and developed countries with the top 100 by market capitalization included in the index. The fund was launched in October 2006. The expense ratio is .58%.
AUM equal $32 million and average daily trading volume is 15K shares. As of mid-February 2012 the annual dividend yield was 4.30% and YTD return 5.91%. The one year return was -8.19%
Data as of First Quarter 2012
DBU Top Ten Holdings & Weightings
Light S.A. (LIGT3): 3.18%
Drax Group PLC (DRX): 2.31%
AES Tiete S.A. (GETI3): 2.28%
Energy Company of Minas Gerais (CMIG3): 2.23%
AguasAndinas S.A.: 2.02%
Just Energy Group Inc (JE): 1.85%
AGL Energy Limited (AGK): 1.76%
Rwe AG (RWE): 1.74%
E.ON Aktiengesellschaft (EOAN): 1.72%
CIA Saneamento De Minas Gerais-COPASA MG (CSMG3): 1.63%
PSCU follows the S&P Small-Cap 600 Utilities Index which takes the Small-Cap 600 utility equity components to form the index. The fund was launched in April 2010.
The expense ratio is .29%. AUM equal $49 million and average daily trading volume is 9K shares. As of mid-February 2012 the annual dividend yield was 3.02% and YTD return 2.21%. The one year return was 14.24%
PUI follows the Dynamic Utilities Intellidex Index which is a so-called “enhanced” index since rather than a passive index approach the index is designed to select constituents using quantitative analytics intended to provide the greatest return. The fund was launched in October 2005.
The expense ratio is .60%. AUM equal $47 million and average daily trading volume is 17K shares. As of mid-February 2012 the annual dividend yield was 2.81% and YTD return 2.52%. The one year return was 6.32%
FXU follows the StrataQuant Utilities Index which is another “enhanced” index designed around quantitative methodologies by the NYSE Euronext employing the AlphaDEX system of constituent utilities selection from the Russell 1000 Index.
The fund was launched in May 2007. The expense ratio is .70%. AUM equal $385 million with average daily trading volume of 305K shares. As of mid-February 2012 the annual dividend yield was 3.08% and YTD return -1.73%. The one year return was 4.46%
JXI follows the S&P Global Utilities Index which follows the performance of the global equity market. The fund was launched in September 2006. The expense ratio is .48%. AUM equal $255 million and average daily trading volume is 50K shares.
As of mid-February 2012 the annual dividend yield was 4.74% and YTD return .93%. The one year return was -5.73%
IDU follows the Dow Jones U.S. Utilities Index which also covers the broad spectrum of the utilities sector of the U.S. equity market. The fund was launched in June 2000. The expense ratio is .48%. AUM equal $700 million and average daily trading volume is 68K shares.
As of mid-February 2012 the annual dividend yield was 3.40% and YTD return -2.48%. The one year return was 12.74%
VPU follows the MSCI US Investable Market Utilities 25/50 Index which consists of small, medium and large companies. The fund was launched in January 2004. The expense ratio is .25%. AUM equal $936 million and average daily trading volume is 100K shares.
As of mid-February 2012 the annual dividend yield was 3.59% and YTD return -2.63%. The one year return was 12.99%
XLU follows the Utilities Select Sector Index covers most publicly traded U.S. utilities, multi-utilities, independent power producers & traders and gas utilities. The fund was launched in December 1998. The expense ratio is .19%. AUM (Assets under Management) equal $6 billion and average daily trading volume is 7M shares.
As of mid-February 2012 the annual dividend yield was 3.95% and YTD return -2.81%. The one year return was 13.87%.
Inverse and leveraged issues are available from ProShares.
Data as of First Quarter 2012
XLU Top Ten Holdings & Weightings
Southern Co (SO): 9.25%
Dominion Resources Inc (D): 6.71%
Exelon Corp (EXC): 6.21%
Duke Energy Corporation (DUK): 6.17%
NextEra Energy Inc (NEE): 5.96%
American Electric Power Co Inc (AEP): 4.52%
FirstEnergy Corp (FE): 4.16%
Consolidated Edison, Inc. (ED): 4.10%
PG&E Corp (PCG): 3.91%
Progress Energy, Inc. (PGN): 3.80%
We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we’re sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.
Below is the methodology for ranking the ETFs within the category.
Strong established linked index Excellent consistent performance and index tracking Low fee structure Strong portfolio suitability Excellent liquidity
Established linked index even if “enhanced” Good performance or more volatile if “enhanced” index Average to higher fee structure Good portfolio suitability or more active management if “enhanced” index Decent liquidity
Enhanced or seasoned index Less consistent performance and more volatile Fees higher than average Portfolio suitability would need more active trading Average to below average liquidity
Index is new Issue is new and needs seasoning Fees are high Portfolio suitability also needs seasoning Liquidity below average
It’s also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab’s ETFs and Scottrade’s Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned.
For further information about portfolio structures using technical indicators like DeMark and other indicators, take a free 14-day trial at ETF Digest. Follow us on Twitter and Facebook as well and join our group conversations.
You may address any feedback to:
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
The ETF Digest is long XLU.
(Source for data is from ETF sponsors and various ETF data providers)
Utility investments are at the conservative end of investing. Most investors buy them for the steady dividends and lower market volatility. This feature hasn’t changed much.
There is currently an expanding list of 24 ETFs oriented to the utility and infrastructure sector with more on the way. The following analysis features a fair representation of ETFs available. We believe from these investors may choose an appropriate ETF to satisfy the best index-based offerings individuals and financial advisors may utilize.
Currently utilities are under significant regulatory and macro-economic pressure. From a regulatory view most utilities need a more contemporary grid but the climate is uncertain given a wide variety of local issues from communities.
Atop this are fuel issues including whether to upgrade older plants with cheap and readily available coal, natural gas, oil or nuclear. Hydro-electric systems seem completely stopped from an environmental view and most available sources have been tapped. Nuclear power seems safe enough for new plants but with an old Fukushima plant and disaster in the publics’ mind these seem an unlikely source unfortunately. Oil powered utilities are more acceptable but fuel costs are high. Alternative (green) energy is still unavailable in the amount necessary and is more costly. The best bet is natural gas as an intermediate source if fracking controversies can be satisfied and overcome.
Another drag on public utilities is the economic climate. When the economy slows power use drops as well. Perhaps the best example is the high number of vacant homes in the U.S. currently with unused meters.
ETFs are based on indexes tied to well-known index providers including Russell, S&P, Barclays, MSCI, Dow Jones, Wisdom Tree, PowerShares, EG Shares and so forth. Also included are some so-called “enhanced” indexes that attempt to achieve better performance through more active management of the index. Investors should note the holdings we have listed and compare one issue to another in this regard.
We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12 month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.
For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.
#10: iShares Utilities ex-US ETF (AXUT)
AXUT follows the MSCI All Country World ex-USA Utilities Index which is a market cap weighted index of developed and emerging market countries. The fund was launched in July 2010. The expense ratio is .48%. AUM equal $2.2 million and average daily trading volume is only 1K shares. As of mid-February 2012 the annual dividend yield was 4.66% and YTD return 7.61%. The one year return was -14.83%
With a fund this young but with a sponsor this big you would intuitively believe the fund has a better chance of succeeding versus with a smaller sponsor. Much of the poor growth is due to much unsettled economic issues globally.
Data as of First Quarter 2012
AXUT Top Ten Holdings & Weightings
#9: Rydex Equal Weight Utilities ETF (RYU)
RYU follows the S&P Equal Weight Index which is not much different from XLU except that by breaking components into equal weights provides a different and perhaps fairer view of overall conditions. The fund was launched in January 2006. The expense ratio is .50%. AUM equal $49 million and average daily trading volume is 17K shares. (NOTE: The sponsor has suffered numerous ownership changes and marketing efforts have been hindered. The structure of the index is sound but the liquidity and fees are still higher than average.)
Remember the advantage of an equal weighted index-based ETF is an investor won’t be hurt by a bad situation in one but won’t be helped by a better performer either. As of mid-February 2012 the annual dividend yield was 3.40% and YTD return -1.98%. The one year return was 8.15=4%
Data as of First Quarter 2012
RYU Top Ten Holdings & Weightings
#8: WisdomTree Global ex-U.S. Utility ETF (DBU)
DBU follows the WisdomTree Global ex-US Utility Index which follows utility equities from emerging and developed countries with the top 100 by market capitalization included in the index. The fund was launched in October 2006. The expense ratio is .58%.
AUM equal $32 million and average daily trading volume is 15K shares. As of mid-February 2012 the annual dividend yield was 4.30% and YTD return 5.91%. The one year return was -8.19%
Data as of First Quarter 2012
DBU Top Ten Holdings & Weightings
#7: PowerShares Small-Cap Utilities ETF (PSCU)
PSCU follows the S&P Small-Cap 600 Utilities Index which takes the Small-Cap 600 utility equity components to form the index. The fund was launched in April 2010.
The expense ratio is .29%. AUM equal $49 million and average daily trading volume is 9K shares. As of mid-February 2012 the annual dividend yield was 3.02% and YTD return 2.21%. The one year return was 14.24%
Data as of First Quarter 2012
PSCU Top Ten Holdings & Weightings
#6: PowerShares Dynamic Utilities ETF (PUI)
PUI follows the Dynamic Utilities Intellidex Index which is a so-called “enhanced” index since rather than a passive index approach the index is designed to select constituents using quantitative analytics intended to provide the greatest return. The fund was launched in October 2005.
The expense ratio is .60%. AUM equal $47 million and average daily trading volume is 17K shares. As of mid-February 2012 the annual dividend yield was 2.81% and YTD return 2.52%. The one year return was 6.32%
#5: First Trust Utilities AlphaDEX ETF (FXU)
FXU follows the StrataQuant Utilities Index which is another “enhanced” index designed around quantitative methodologies by the NYSE Euronext employing the AlphaDEX system of constituent utilities selection from the Russell 1000 Index.
The fund was launched in May 2007. The expense ratio is .70%. AUM equal $385 million with average daily trading volume of 305K shares. As of mid-February 2012 the annual dividend yield was 3.08% and YTD return -1.73%. The one year return was 4.46%
Data as of First Quarter 2012
FXU Top Ten Holdings & Weightings
#4: iShares Global Utilities ETF (JXI)
JXI follows the S&P Global Utilities Index which follows the performance of the global equity market. The fund was launched in September 2006. The expense ratio is .48%. AUM equal $255 million and average daily trading volume is 50K shares.
As of mid-February 2012 the annual dividend yield was 4.74% and YTD return .93%. The one year return was -5.73%
Data as of First Quarter 2012
JXI Top Ten Holdings & Weightings
#3: iShares Dow Jones U.S. Utilities ETF (IDU)
IDU follows the Dow Jones U.S. Utilities Index which also covers the broad spectrum of the utilities sector of the U.S. equity market. The fund was launched in June 2000. The expense ratio is .48%. AUM equal $700 million and average daily trading volume is 68K shares.
As of mid-February 2012 the annual dividend yield was 3.40% and YTD return -2.48%. The one year return was 12.74%
Data as of First Quarter 2012
IDU Top Ten Holdings & Weightings
#2: Vanguard Utilities ETF (VPU)
VPU follows the MSCI US Investable Market Utilities 25/50 Index which consists of small, medium and large companies. The fund was launched in January 2004. The expense ratio is .25%. AUM equal $936 million and average daily trading volume is 100K shares.
As of mid-February 2012 the annual dividend yield was 3.59% and YTD return -2.63%. The one year return was 12.99%
Data as of First Quarter 2012
VPU Top Ten Holdings & Weightings
#1: SPDR Utilities Sector ETF (XLU)
XLU follows the Utilities Select Sector Index covers most publicly traded U.S. utilities, multi-utilities, independent power producers & traders and gas utilities. The fund was launched in December 1998. The expense ratio is .19%. AUM (Assets under Management) equal $6 billion and average daily trading volume is 7M shares.
As of mid-February 2012 the annual dividend yield was 3.95% and YTD return -2.81%. The one year return was 13.87%.
Inverse and leveraged issues are available from ProShares.
Data as of First Quarter 2012
XLU Top Ten Holdings & Weightings
We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that we’re sorting these by both short and intermediate issues we have split the rankings as we move from one classification to another.
Below is the methodology for ranking the ETFs within the category.
Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity
Established linked index even if “enhanced”
Good performance or more volatile if “enhanced” index
Average to higher fee structure
Good portfolio suitability or more active management if “enhanced” index
Decent liquidity
Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity
Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average
It’s also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab’s ETFs and Scottrade’s Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned.
For further information about portfolio structures using technical indicators like DeMark and other indicators, take a free 14-day trial at ETF Digest. Follow us on Twitter and Facebook as well and join our group conversations.
You may address any feedback to: This e-mail address is being protected from spambots. You need JavaScript enabled to view it
The ETF Digest is long XLU.
(Source for data is from ETF sponsors and various ETF data providers)