Utilities stocks and the related ETFs have warded off interest rate disappointment this year. Indeed, they’ve delivered admirable performances, particularly in the context of the sector as a slow-moving bond proxy.
Talk of major consolidation and the sector’s clear inroads to the AI trade support utilities upside this year. To be sure, those are compelling reasons for investors who want to avoid stock-picking to examine utilities ETFs. They ought to include the Invesco S&P 500 Equal Weight Utilities ETF (RSPU) on their shopping lists.
As its name implies, the $534.1 million RSPU is an equal-weight ETF. That methodology is bearing fruit this year, as the Invesco ETF is beating several of its well-known cap-weighted rivals. Actually, that’s nothing new. RSPU beat the two largest ETFs in the categories by 700 basis points over the past three years. That’s in the past, but there are good reasons to consider the Invesco sector ETF today.
RSPU Holds Some of the Sector’s Best Names
RSPU, which turns 20 years old in November, holds 32 stocks. That group includes stocks some experts consider the cream of the utilities crop, like Edison International (EIX), one of the dominant for-profit utilities in California. Edison is working through a drag created by costs tied to funding wildfire insurance; cash flow could prove sturdy.
“That earnings drag is much smaller after regulators approved recovery and securitization of $3.6 billion of costs related to the 2017-18 wildfire and mudslides,” noted Morningstar analyst Travis Miller. “That should boost cash in 2026. Settlement costs related to the Eaton fire could be a slight near-term drag, but provisions in California’s AB 1054 and SB 254 legislation should minimize long-term cash flow constraints.”
American Electric Power (AEP), another RSPU holding, is one of the biggest regulated utilities in the U.S. and another example of an RSPU component considered to be one of the sector’s top names. The company’s data center positioning may be one reason that’s the case.
“AEP’s system peak demand could increase by 63 gigawatts by year-end 2030, with load additions in Texas, the mid-Atlantic, and the southwest,” said Morningstar’s Andrew Bischoff. “Data centers account for more than 80% of this incremental load. The new demand is supported by either signed energy service agreements or letters of agreement, which give us confidence in the company’s growth outlook.”
FirstEnergy (FE), which operates in the Mid-Atlantic and Midwest regions, is another RSPU holding viewed as a potentially utility winner. A potential catalyst for upside with this RSPU holding is an improving balance sheet.
“FirstEnergy aims to strengthen its balance sheet and achieve its targeted 14%-15% funds from operations/debt ratio. Balance-sheet strength has been a major focus for investors,” observed Bischoff.
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