Utilities sector exchange traded funds provide stability, along with some extra cash, in times of market duress when high-flying-beta stocks experience wild swings.
The utilities sector has been outperforming the broader equities market so far this year. Year-to-date, the Utilities Select Sector SPDR (NYSEArca: XLU) is up 10.6%, Vanguard Utilities ETF (NYSEArca: VPU) is 9.9% higher and iShares U.S. Utilities ETF (NYSEArca: IDU) rose 9.9%.
Given the increased geopolitical uncertainty in eastern Europe and the Middle East, utility stocks’ steady influence on a portfolio could provide investors with a source of stability, writes John Prestbo for MarketWatch.
Specifically, Prestbo points out that XLU showed a 32.8% correlation to the S&P 500 so far this year, while VPU showed a 37.6% correlation and IDU had a 35.3% correlation.
XLU is the largest sector-focused ETF, with $6.1 billion in assets under management, but it is less diversified with 32 stock holdings. In comparison, the $1.8 billion VPU has 79 components and the $1.1 billion IDU tracks 63 stocks.
The Vanguard offering is the cheapest of the group, with a 0.14% expense ratio. In comparison, XLU has a 0.16% expense ratio and IDU has a 0.46% expense ratio.
Additionally, investors will also enjoy decent yields as well. For instance, XLU has a 3.57% 12-month yield, VPU has a 3.44% 12-month yield and IDU has a 3.13% 12-month yield.