What Is the Dow Jones Utility Average?
The Dow Jones Utility Average (DJUA) is one of the Dow Jones index groups that tracks the performance of a small group of prominent utility companies. It is a price-weighted average of 15 utility stocks traded in the United States. Dow Jones first created the DJUA back in 1929 after removing all utility stocks from the Dow Jones Industrial Average. The DJUA is sometimes referred to as the Dow Jones Utilities.
Understanding the DJUA
The Dow Jones Utility Average (DJUA) currently includes major utility companies such as Consolidated Edison, Inc., Duke Energy Corporation, FirstEnergy Corp, American Water Works Company, Inc., and NextEra Energy, Inc.
Other investing platforms that specifically focus on utilities include the Vanguard Utilities Index Fund and the Utilities Select Sector SPDR Fund.
The DJUA and the Dow Jones Transportation Average are assigned their own separate categories in the national investment tracking landscape. The pair is detached from all of the other industries in the U.S. equities market that are included in the Dow Jones Industrial Average.
In the U.S. economic landscape, the utility sector encompasses companies and public entities that produce and deliver some type of utility resource, which could include electricity and natural gas, as well as cooled air or steam. This is different from the energy sector, although the two may sound very similar, and some companies may conduct activities that fall into both categories. The energy sector covers companies that are engaged in exploration and development related to natural resources such as coal, natural gas, and oil.
The DJUA as an Economic Indicator
Economic analysts tend to pay close attention to developments and trends in the utility sector because it can be indicative of trends in the economy as a whole. With their major infrastructure and high overhead, utility companies typically carry a lot of debt. This characteristic can make them a reliable early indicator to predict general economic trends in the near future. By carefully observing movements in this sector, economists can draw conclusions about upcoming market trends and interest rate changes.
The utility average tends to decline when investors expect rising interest rates. Utilities tend to borrow a lot of money and, consequently, are more sensitive to changes in interest rates.
Utility stocks are high-yield investments that are subject to interest rate risk. These companies and the sector as a whole are also vulnerable to environmental regulations and government developments that can have a significant impact on their operations and profit potential.