Exchange Traded Funds (ETFs)

Harnessing the Power of Energy with a Utility ETF

The Utilities Select Sector SPDR Fund (NYSEARCA: XLU) is an exchange-traded fund intended to give shareholders access to the utilities segment of the economy.

Specifically, XLU tracks the Utilities Select Sector Index, which, in turn, attempts to mirror the performance of the utilities sector of the S&P 500 Index. The decision of XLU’s management to invest only in utility companies that are in the S&P 500 has allowed this ETF to amass huge assets and volume.

At the same time, the portfolio is heavily concentrated in a few large firms. Among them are NextEra Energy, Inc. (NYSE: NEE), Duke Energy Corporation (NYSE: DUK), Dominion Energy Inc. (NYSE: D), Southern Company (NYSE: SO), Exelon Corporation (NYSE: EXC), American Electric Power Company Inc. (NYSE: AEP), Sempra Energy (NYSE: SRE), Xcel Energy Inc. (NASDAQ: XEL) and WEC Energy Group Inc. (NYSE: WEC).

The fund currently has more than $10.89 billion in assets under management and an average spread of 0.02%. It also has an expense ratio of 0.13%, meaning that it is less expensive to hold than some other ETFs.

Chart Courtesy of stockcharts.com

This fund’s performance has been generally positive in both the short and long run. As of Aug. 27, 2019, XLU gained 3.87% over the past month, rose 4.96% over the past three months and soared 19.54% year to date.

Of course, while XLU does provide an investor with the chance to profit from the world of utilities, the sector may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.