Special 10-Part Series on the Premier Sector Funds: A Key Utility Player

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).

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(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.

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.