By equally weighting the underlying holdings, RYU leans toward mid-cap names. Mid-cap stocks make up 45.8% of the ETF, followed by large-caps at 42.4% and mega-caps at 11.7%.
On the other hand, XLU, which tracks the S&P 500 utilities sector, only focuses on utilities companies, including electric utilities, multi-utilities, independent power producers & energy traders, and gas utilities. Additionally, the SPDR ETF follows a market capitalization-weighted methodology, which tilts toward large-caps at 66.1% of the ETF’s holdings, followed by mid-caps at 33.9% of the fund.
“Utilities companies have benefited from strong residential and commercial demand for electricity and have enjoyed cheap debt financing to fund capital projects,” according to Morningstar analyst Robert Goldsborough. “In addition, utilities companies benefit from a declining interest-rate environment, which can boost firms’ profitability because regulated rates of return are not frequently adjusted by regulators.”
The recent outperformance of the utilities sector has also been a result of a combination of increased heating demand due to an abnormally frigid winter and falling yields in benchmark 10-year Treasuries. [Yield-Generating Utilities ETFs Shine in a Murky Market]
For more information on the utilities sector, visit our utilities category.