Utility ETFs Can Have a Home In Long-Term Portfolios

April 03, 2008 at 3:00 pm by Tom Lydon

The utility sector is represented by a few exchange traded funds (ETFs), and in volatile markets, they’ve acted as a good hideout spot.

Over the last five years, utility ETFs such as the iShares Dow Jones U.S. Utilities Fund (IDU) or the Utilities Select Sector SPDR (XLU) have seen wonderful price appreciations of about 100%, reports Billy Fisher for The Street. In 2007, the ETFs were up 13.5% and 16.3% respectively. This year, they’ve faltered some: IDU is down 6.9%, while XLU is down 6.2%.

These ETFs tout dividend yields as well, between 2.5% and 3.0%. The recent market swings have proven these ETFs to be a great place to be for shelter. Will other market sectors start to trend above these ETFs in the coming quarters?

Industry insiders believe that utility stocks are overvalued right now. Many are not bullish in utilities, but say they do have a place in a long-term portfolio. Average earnings growth and stability are traits that give utility ETFs some added attraction.

Both of these utility ETFs are far below their trend lines – both the 50-day and 200-day moving averages. Hold off until they cross over, then implement your exit strategy if they head south again.