The Vanguard Utilities ETF (VPU) is an ETF that focuses on utility stocks, seeking to track the performance of a benchmark index that measures the investment return of stocks in the utilities sector. The fund is passively managed, resulting a low 0.10% expense ratio, using a full-replication strategy when possible and a sampling strategy if regulatory constraints dictate. VPU includes stocks of companies that distribute electricity, water, or gas, or that operate as independent power producers.
Investors who are looking for companies to invest in that carry minimal risk will often consider utility stocks. Utility companies typically comprise the most fundamental necessities, such as food, water and shelter, or are closely related to the energy required to refrigerate food, heat up water and light up a house.
When the economy goes through a rough patch, it’s generally much more feasible to cut back on discretionary spending like travel or apparel than it is to materially reduce your energy expenditure. Seasons follow their patterns regardless of the broader economy. Thus, income investors are particularly attracted to energy utilities because steady demand generates consistent profits, resulting in predictable dividends. The utilities sector typically moves lower when interest rates rise, due to higher funding costs.
More specifically, the fund employs an indexing investment approach designed to track the performance of the MSCI US Investable Market Index (IMI)/Utilities 25/50, an index made up of stocks of large, mid-size, and small U.S. companies within the utilities sector, as classified under the Global Industry Classification Standard (GICS). The Advisor attempts to replicate the target index by seeking to invest all, or substantially all, of its assets in the stocks that make up the index, in order to hold each stock in approximately the same proportion as its weighting in the index. The fund is non-diversified.
Top holdings in the Vanguard Utilities ETF (VPU) include the following, which show 1-year returns and net assets, both as percentages.
|Company||1-year Returns||% Net Assets|
|NextEra Energy Inc NEE|
|Duke Energy Corp DUK|
|Dominion Energy Inc D|
|Southern Co SO|
|Exelon Corp EXC|
|American Electric Power Co Inc AEP|
|Sempra Energy SRE|
|Public Service Enterprise Group Inc PEG|
|Xcel Energy Inc XEL|
|Consolidated Edison Inc ED|
The current dividend yield for the fund is 2.96% as of the time of this article (May 22, 2019).