Exchange Traded Funds (ETFs)

ETF Talk: Utilize AI Alternatives with This ETF

The market for artificial intelligence (AI) is in a bit of a rough place right now. Since the beginning of this year, there’s been a sell-off in AI largely caused by nervous investors abandoning ship.

Naturally, this has caused a decline in exchange-traded funds (ETFs) with a large AI focus. Take for example the iShares Expanded Tech-Software Sector ETF (IGV), which has been on a major decline over the past few months.

In times like these, many investors are looking for alternative investments to AI. One such alternate market that provides a good margin of safety is utilities, where demand continues to rise. This market is the sole focus of today’s ETF: the Utilities Select Sector SPDR Fund (XLU).

XLU is unique, in that it only invests in utilities companies that are included in the S&P 500. This allows the fund to dominate its segment with huge assets and volume, but it also causes it to be more concentrated in a handful of large firms. Despite its narrow focus, XLU is still a solid choice for exposure to the segment.

Its focus on energy and utilities overall also offers the fund more protection from market turmoil compared to funds like IGV. XLU currently has assets under management of around $24.49 billion and an expense ratio of 0.08%, compared to IGV’s assets under management of $9.61 billion and expense ratio of 0.39%.

XLU is currently up 8.86% over the last month, 8.27% over the last three months and 10.26% year to date. Compare this to IGV, which is currently down 1.49% over the last month, 21.15% over the last three months and 20.41% year to date. Through these numbers, XLU clearly provides an alternative for alpha.

Exclusive ETF Talk: Finding Value in Your Brokerage

XLU’s top holdings include NextEra Energy, Inc. (NYSE: NEE), 13.34%; Southern Company (NYSE: SO), 7.32%; Constellation Energy Corporation (NASDAQ: CEG), 7.04%; Duke Energy Corporation (NYSE: DUK), 6.95%; American Electric Power Company, Inc. (NASDAQ: AEP), 4.89%; Sempra (NYSE: SRE), 4.29%; Vistra Corp. (NYSE: VST), 3.78%; Dominion Energy Inc (NYSE: D), 3.68%; Exelon Corporation (NYSE: EXC), 3.41% and Xcel Energy Inc. (NASDAQ: XEL), 3.37%.

Chart from stockcharts.com.

While XLU provides a good alternative to AI investing, it still may not be the right investment for your portfolio. Investors should always do their due diligence before adding any stock, fund or ETF to their portfolio.

Of course, 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.