Sometimes, boring is good.
Now, given what I say frequently in The Deep Woods e-letter and in my trading alerts about living life to its fullest and seizing every opportunity to exercise our reason, that may seem contradictory.
But, at least in regards to investing in utilities stocks, boring does not mean economic stagnation — languishing behind while others scoop up formidable profits. Indeed, according to Investor’s Business Daily, eight so-called “boring” utilities stocks are up more than 30% this year.
The benchmark exchange-traded fund in this sector, the Utilities Select Sector SPDR Exchange Fund (XLU), is up more than 21% — even beating the 20% gain of the S&P 500 itself and the returns of the other two leading Select Sector Exchange-Traded Funds (Technology and Communications) by anywhere from 1% to 5%.
And the cause?
Well, the answer is certainly not “boring.” The demand for utilities, and therefore utilities stocks, is directly correlated with the demand for artificial intelligence (AI), especially large language models such as ChatGPT. These require massive amounts of electricity to be trained and work properly.
The First Trust Utilities AlphaDEX Fund (NYSEARCA: FXU) is an exchange-traded fund (ETF) which aims to produce investment results that correspond generally to the price and yield, before fees and expenses, of the StrataQuantUtilities Index. The stocks in the FXU basket are an equally weighted list of large- and mid-cap utility companies in the United States, with a special focus on value and growth. This produces a basket of stocks that favors mid-caps, instead of the broader sector.
Top holdings in this fund include Vistra Corp. (NYSE: VST), Constellation Energy Corporation (NASDAQ: CEG), NRG Energy, Inc. (NYSE: NRG), Avangrid, Inc. (NYSE: AGR), National Fuel Gas Company (NYSE: NFG), Pinnacle West Capital Corporation (NYSE: PNW), Exelon Corporation (NASDAQ: EXC) and UGI Corporation (NYSE: UGI).
As of Oct. 9, FXU has been up 6.48% over the past month and up 16.13% for the past three months. It is currently up 22.28% year to date.
Chart courtesy of www.stockcharts.com
The fund has amassed $313.4 million in assets under management and has an expense ratio of 0.64%.
While FXU allows prospective investors entry into the world of utilities stocks, such a fund may not be suitable for all portfolios. So, it’s important to carefully consider the risks and potential returns before making any investment decisions.
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.
