A utility exchange-traded fund (ETF) offers an efficient way to invest in a broad selection of electric, water and natural gas companies, and other firms operating in the utilities sector of the economy. The top five utility ETFs offer investors unique options to gain exposure to the utility equities that best match their investment needs. These include ETFs focused on American utilities broadly, on small-cap or large-cap American utilities, or on international utilities.
1. Utilities Select Sector SPDR ETF
The Utilities Select Sector SPDR ETF (NYSEARCA: XLU) seeks to track the investment performance of the Standard and Poor's Utilities Select Sector Index. This index is a sectoral subset of the S&P 500 Index, which focuses on large-cap companies in the United States. The Utilities Select Sector Index includes leading American electric utilities, gas utilities, water utilities, power producers and energy traders. XLU attempts to replicate the performance of the underlying index by investing in the same stocks in the same proportions as the index whenever possible. In normal conditions, no less than 95% of the fund's assets match those held in the index.
As of June 2020, XLU has net assets of nearly $11.19 billion across 28 stocks. The top five holdings in the fund are NextEra Energy at approximately 15%, Dominion Resources at 8.5%, Duke Energy Corporation at 7.8% Southern Company at 7.3% and American Electric Power at 5%. The top 10 holdings together account for almost 64% of the fund's assets. XLU has a very low expense ratio of 0.13%.
2. iShares U.S. Utilities ETF
The iShares U.S. Utilities ETF (NYSEARCA: IDU) is a good option for investors looking for wider exposure to the U.S. utilities sector. While XLU focuses only on large-cap utilities, IDU provides some exposure to small- and mid-cap utilities as well. IDU attempts to match the investment results of the Dow Jones U.S. Utilities Index. This index is a subset of the Dow Jones U.S. Market Index, which includes the top 95% of U.S. stocks based on float-adjusted market capitalization. IDU uses a representative sampling strategy to approximate the investment profile of the underlying index rather than attempting to replicate the index in full.
As of June 2020, IDU has net assets of about $798.7 million across 48 stocks. Since IDU's underlying index is weighted according to market capitalization, the fund's top 10 holdings are all large-cap companies. Among the top five holdings, NextEra Energy has an allocated of 13.58%, Dominion Energy Company. is allocated at approximately 7.7%, while Duke Energy Corporation is at 7.11%, Southern Company at 6.6% and American Electric Power Company at 4.55%. The top 10 holdings together account for about 60% of the fund's assets. The electric utility industry accounts for approximately 59.48% of the fund, while multi-utilities account for 30.05% and natural gas utilities account for 4.34%. IDU has an expense ratio of 0.43%.
3. iShares Global Utilities ETF
The iShares Global Utilities ETF (NYSEARCA: JXI) provides exposure to gas, water and electric utility companies around the world. The fund is designed to track the investment performance of the S&P Global 1200 Utilities Sector Index. This index is made up of utility companies deemed to be important to global equities markets. It is a sectoral subset of the S&P Global 1200 Index. JXI employs a representative sampling strategy to match the investment profile of the underlying index and produce corresponding investment results.
As of June 2020, JXI has net assets of nearly $229.5 million across 66 stocks. The fund's largest holdings include the NextEra Energy at 9%, Dominion Energy at 5.1%, Iberdrola SA at 4.9%, and Enel at 4.7%. In terms of geography, 60.2% of the fund is allocated to the companies in the U.S., 6.8% to Spain, U.K., 6.3% to Italy, and 5.8% to the United Kingdom. Electric utilities account for 59.6% of the fund, while multi-utilities and gas utilities make up 30.3% and 5.9% of the fund, respectively. JXI has an expense ratio of 0.46%.
4. Invesco S&P SmallCap Utilities & Communication Services ETF
The Invesco S&P SmallCap Utilities & Communication Services ETF (NASDAQ: PSCU) provides investors with exposure to small-cap electric, water and natural gas utilities and telecommunication services companies headquartered in the U.S. PSCU tracks the investment results of the S&P SmallCap 600 Capped Utilities and Telecom Services Index, which includes companies that have a market capitalization between $171 million and $3.58 billion. Companies in the index are weighted according to market capitalization under a free-float methodology to account for shares not available on the open market. PSCU seeks to produce investment results corresponding to the underlying index by investing in the same stocks in the same proportions as those found in the index.
As of June 2020, PSCU has net assets of about $24.5 million across 24 stocks. The fund's largest holding is Cogent Communication at 9.5%. American States Water Company, is allocated at 8.6%; El Paso Electric Company is at 8.4%; and Avista Corporation, an energy company, is at 7.5%. PSCU differs from other funds on this list by allocating a substantial portion of assets to the natural gas industry, which dominates the small-cap utilities sector. Diversified Telecommunications Services make up 30.64% of the fund's assets, while media accounts for 17% and water utilities for 12.4%. PSCU has an expense ratio of 0.29%.
5. SPDR S&P International Utls Sect ETF
The SPDR S&P International Utls Sect ETF (NYSEARCA: IPU) attempts to deliver investment results matching the performance of the S&P Developed Ex-U.S. BMI Utilities Sector Index. This index tracks utility companies in developed economies not including the U.S. It is a subset of the S&P Global BMI Index, which only includes companies with at least $100 million in float-adjusted market capitalization. IPU uses a sampling strategy to approximate the investment profile of the underlying index.
As of November 2015, IPU has net assets of about $29 million across 138 stocks. Its largest holdings include National Grid at 9.9%, Spain's Iberdrola at 7.1%, Italy's Enel at 5.7% and France's Engie at 4.7%. In geographical terms, the U.K. has an allocation of 21.8%, Japan is at 14.3%, Spain is at 12.8% and Italy is at 10.5%. Electric utilities dominate the fund with a 47.2% share of assets. Multi-utilities account for 29.3% and natural gas utilities account for 14%. IPU has an expense ratio of 0.4%.