If there is a saying that expresses the mood of the market right now, it is “what is old is new again.”
This time, it is the utility stocks — especially electricity stocks — that have taken center stage. One reason for this is that even in times of economic turmoil, as Avi Salzman of Barrons wrote, people “tend to pay their electric bills.” As a result, utility companies tend to offer stable dividend payouts and consistent quarterly earnings reports with few surprises.
However, a new actor has brought electricity stocks to center stage — and that’s the AI revolution. After all, the data centers that are powering this momentous transformation in all our lives need electricity to function. And of the utility companies, Avi noted at the end of last year, smaller companies that are not subject to regulations have done the best — cutting deals with the tech companies that are driving this revolution forward.
One exchange-traded fund (ETF) that epitomizes utilities stocks is the Utilities Select Sector SPDR Fund (NYSEARCA: XLU). The fact that this ETF invests in utilities companies that are included in the S&P 500 is both good and bad. The good news is that this ETF is a giant in its sector in terms of assets and volume. The bad news, however, is that its portfolio is often dominated by very large companies. Thus, investors who are interested in broader exposure to the sector may want to look elsewhere.
Currently, the fund’s top holdings include NextEra Energy (NYSE: NEE), Constellation Energy (NYSE: CON), The Southern Company (NYSE: SO), Duke Energy Corp. (NYSE: DUK), Vistra Corp. (NYSE: VST), Sempra Energy (NYSE: SRE), American Electric Power Company (NASDAQ: AEP) and Dominion Energy (NYSE: D).
(NOTE: NextEra Energy (NYSE: NEE) is a core holding in my Investing Edge Top 10 Income Multipliers Portfolio.)
As of today, XLU has been down 7.93% over the past month and down 5.52% over the past three months. Over the past 12 months, the fund is up 24.76%.
The fund has amassed $17.16 billion in assets under management and has an expense ratio of 0.09%.
In short, while XLU does provide an investor with a way to profit from utilities stocks, this ETF 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.
