ETF Talk: A ‘Boring’ ETF? Not Quite

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.

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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.

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 Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. 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.