Zacks Investment Ideas feature highlights: Utilities Select Sector SPDR Fund, First Trust Utilities AlphaDEX Fund and Guggenheim S&P Equal Weight Utilities ETF
CHICAGO, Oct. 8, 2014 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Utilities Select Sector SPDR Fund (AMEX:XLU-Free Report), First Trust Utilities AlphaDEX Fund (AMEX:FXU-Free Report) and Guggenheim S&P Equal Weight Utilities ETF (AMEX:RYU-Free Report).
Protect Your Portfolio with These Utility ETFs
There is no question any more, markets are on a shaky footing. Seemingly every sector is facing some degree of weakness, while concerns are building about global growth and the impact of a strong dollar as well.
In fact, over just the last five days, the S&P 500 has lost close to 0.7% while SPDR sector ETFs targeting energy and materials have both slid by more than 3.5% in the time period. There was a single segment that was able to outperform and gain more than 1% in the time frame though; utilities.
Utilities in Focus
Though utilities are certainly not a 'sexy' industry, they can be interesting choices in rocky markets. That is because they are very low-beta, and are relatively immune from market ups and downs. Plus, they are less impacted than most by a strong dollar environment (due to a lack of exports or global exposure), and if anything, benefit from a strong currency and its impact on commodity prices (see all the utility and infrastructure ETFs).
Investors should also note that utilities are a relatively interest rate sensitive sector and usually give out strong yields. Yet with falling treasury bond yields, utilities only look more attractive in the near term, and are actually helped by the broad flight to safety. And should this broad market trend continue, utilities could put up strong relative performances and help to counteract some of the negativity that you are undoubtedly experiencing in other corners of your portfolio.
However, you may never really look at this space and are having trouble deciding which company is the best bet in this safe sector. Fortunately, there are a number of ETFs that follow this segment and can give you broad exposure which will assist in taking out the risk of picking the wrong company in this usually-overlooked segment (see Best Performing Utility ETFs).
Below, we highlight three solid utility ETFs that give investors access to a number of companies in the space, and could be better picks right now if market turmoil remains. Consider any of these if you are looking to reduce the beta in your portfolio, or if you are just looking for a slightly safer place to stash your cash until this downturn is over:
Utilities Select Sector SPDR Fund (AMEX:XLU-Free Report)
This is easily the most popular utility ETF on the market with over $5.5 billion in AUM. The fund charges investors just 16 basis points a year in fees, while it holds 32 stocks in its basket by tracking the S&P Utilities Select Sector Index.
The fund is skewed towards electric utilities which account for about 56% of the portfolio though multi-utilities receive a solid weighting at about 39% of the portfolio. Top individual holdings include Duke Energy (9.2%), Dominion Resources (7.7%), and NextEra Energy (7.7%).
Investors should also note that the ETF pays out a pretty robust 3.6% dividend, at least when looking at the 30 Day SEC Yield metric. Over the last ten trading sessions, this fund has added about 1.1%, while the S&P 500 has lost 1.25% in comparison (see the Guide to Utility ETFs).
First Trust Utilities AlphaDEX Fund (AMEX:FXU-Free Report)
For a slightly more 'active' approach to security selection, investors can take a look at FXU for exposure, as it follows the StrataQuant Utilities Index. This benchmark ranks securities on a variety of value and growth factors, throwing out the bottom 25% and then dividing the rest into quintiles and weighting the top quintiles the highest.
This results in a more expensive portfolio with a cost of 70 basis points a year, though it does hold 44 stocks in total in the basket. No single company really dominates the index, though investors should note that electric utilities and mutli-utilities receive about 33% each, while telecoms account for about 20% of the total.
The yield is a bit lower here, coming in at just 2.8% in 30 Day SEC yield terms, so it may not be as much of an income destination as others. Additionally, it has had a weaker 10 day performance losing about 0.8% in the time frame, though this is still better than the S&P 500 with a higher yield (see 3 High Yield ETFs for Your IRA).
Guggenheim S&P Equal Weight Utilities ETF (AMEX:RYU-Free Report)
If investors are looking for a fund that has extremely low levels of company specific risk, RYU is intriguing due to its equal weight focus. The fund tracks the S&P 500 Equal Weight Index Telecommunication Services & Utilities ETF, holding about 35 stocks in the basket and charging investors 40 basis points a year in fees.
Companies in this portfolio make up about 3% of the total each, and the fund has a tilt towards multi-utilities and electric utilities (40% each), while telecoms account for 14.3% of the portfolio. This fund is the least popular on the list, though it still has AUM above $100 million.
The trailing twelve month yield comes in at about 3.2%, so it is kind of a middle of the road choice from a yield perspective. Over the last ten days, this fund is up 0.6%, once again beating out the S&P 500.
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