Utilities exchange traded funds have rewarded investors in significant fashion this, receiving ample adulation in the process.
That praise is well-deserved as utilities are the best-performing sector in the S&P 500 this year. U.S.-focused utilities ETFs, such as the Utilities Select Sector SPDR (NYSEArca: XLU), have produced double-digit returns to go along with above-average dividend yields. XLU, the largest utilities and the leader among the nine sector SPDR ETFs, is up 18% year-to-date and hit a new all-time high Thursday. [Utilities ETFs for the Summer Doldrums]
As is the case across most other sectors, U.S. sector funds have global equivalents, though in a year in which utilities ETFs are soaring, the WisdomTree Global ex-US Utilities Fund (NYSEArca: DBU) arguably is not getting the attention it deserves.
Sure, DBU is small in size ($24.8 million in assets under management) compared to some of the more familiar utilities ETFs, but the fund has given investors plenty of reasons to focus on the facts, not superficial metrics such as size.
The facts are DBU is up 16.4% year-to-date and hit a new 52-week high Thursday. DBU’s underlying index, the WisdomTree Global ex-US Utilities Index (WTGXU), has a dividend yield of almost 4.7%, according to WisdomTree data.
That is well in excess of standard U.S. utilities ETFs, underscoring the point that global dividend stocks often sport heftier yields than their U.S. counterparts from the same sector. [An ETF for High Quality Global Dividends]
DBU’s geographic split is nearly even between developed markets (13) and emerging markets (11). Brazil is the ETF’s largest country weight at almost 12% followed by France at 11.4%. Those country allocations, among others, speak to an interesting trait about DBU. While its U.S. rivals are hitting all-time highs, DBU is nowhere close to doing so.
That is not a knock on the ETF. One way of looking at the scenario is that DBU may offer the potential from more upside going forward than its U.S. equivalents. With over 22% of its weight going to Brazil and France, betting on more upside for DBU is not outlandish. The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) needs to double from current levels to reclaim its all-time high while the iShares MSCI France ETF (NYSEArca: EWQ) would need to gain another 33% to achieve that feat. [Big Upside for the France ETF]
DBU’s all-time high is around $37. The ETF closed just under $21 Thursday.
All told, Eurozone nations account for nearly a third of DBU’s weight and that does not include the fund’s exposure to the U.K. or Emerging Europe, indicating the ETF has some leverage to recovering economies throughout Europe. [Global Utilities ETF Sturdy as U.S. Rivals Slide]
DBU offers another advantage: Because it is an international fund, it is less sensitive to changes in U.S. interest rates than domestic utilities ETF. Additionally, the fund has stood strong this year even as some of its constituent countries have raised rates. For example, Brazil has some of the highest rates in the emerging world while the same can be said of New Zealand among developed markets. Higher rates, and soon, appear to be a foregone conclusion in the U.K. Those three countries combine for about 22% of DBU’s weight, but the ETF is still up 16.4% this year.
WisdomTree Global ex-US Utilities Fund Top-10 Holdings