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 November 2015, XLU has net assets of nearly $6.7 billion across 31 stocks. The top five holdings in the fund are Duke Energy Corporation at approximately 8.6%, NextEra Energy at 8.4%, Dominion Resources at 7.9%, Southern Company at 7.6% and American Electric Power Company at 5.3%. The top 10 holdings together account for 60% of the fund's assets. Electric utilities account for about 56.5% of the fund, while multi-utilities account for 39.8%. Multi-utilities are companies that operate in multiple industries within the sector. XLU has a very low expense ratio of 0.14%.
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 November 2015, IDU has net assets of about $571 million across 60 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, Duke Energy Corporation has an allocation of approximately 7.7%, while NextEra Energy is allocated at 7%, Dominion Resources at 6.5%, Southern Company at 6.3% and American Electric Power Company at 4.3%. The top 10 holdings together account for about 50% of the fund's assets. The electric utility industry accounts for 52.8% of the fund, while multi-utilities account for 35.2% and natural gas utilities account for 6.6%. 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 November 2015, JXI has net assets of nearly $163 million across 67 stocks. The fund's largest holdings include the United Kingdom's National Grid at 5.6%, Duke Energy at 5.2%, NextEra Energy at 4.6%, Dominion Resources at 4.3% and Southern Company at 4.2%. In terms of geography, 54.7% of the fund is allocated to the companies in the U.S., 11.7% to the U.K., 6.5% to Spain, and roughly 5% to both Italy and Japan. Electric utilities account for 52.5% of the fund, while multi-utilities and gas utilities make up 36.6% and 7.2% of the fund, respectively. JXI has an expense ratio of 0.47%.
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 $400 million and $1.8 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 November 2015, PSCU has net assets of about $40 million across 20 stocks. The fund's largest holding is Piedmont Natural Gas with a 10.2% allocation. UIL Holdings, an electric utility, is allocated at 9.2%; Southwest Gas is at 8.8%; and New Jersey Resources, a natural gas company, is at 8.3%. 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. Natural gas makes up 41.1% of the fund's assets, while telecommunication services accounts for 21.6% and electricity accounts for 18.2%. 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%.