Utilities stocks were something of a mixed bag in 2018. Companies offering products and services related to water, electricity, gas and other infrastructure managed to outperform many other sectors. However, broad losses across the market in the last portion of the year leveled the playing field to some extent. Still, investors turned to utilities stocks, perhaps in large part because they are seen as stable, necessary services even in times of larger economic turmoil.
For investors keen on taking part in the utilities sector, exchange-traded funds (ETFs) provide a way of gaining broad exposure to a variety of names at once and for a relatively low fee. In spite of market volatility last year, ETFs across all sectors and areas of focus brought in almost $300 billion in net inflows, signalling strong investor interest. Below, we'll take a look at some of the highlights of the subcategory of ETFs focused on utilities names and strategies. These are some of the best-performing utilities ETFs for 2018. We'll compare them against the S&P 500 Utilities Index as a benchmark, the average ETF returns in the sector being 1.3%.
1. Invesco DWA Utilities Momentum ETF (PUI)
Returns for 2018: +7.6%
2. Invesco S&P 500 Equal Weight Utilities ETF (RYU)
Returns for 2018: +7.4%
3. Reaves Utilities ETF (UTES)
Returns for 2018: +6.5%
4. John Hancock Multi-Factor Utilities ETF (JHMU)
Returns for 2018: +6.3%
5. First Trust Utilities AlphaDEX Fund (FXU)
Returns for 2018: +5.7%
Invesco DWA Utilities Momentum ETF
The top-performing utilities ETF in 2018 gained more than 7.6% across the course of the year. The DWA Utilities Momentum ETF, by popular issuer Invesco, stands apart from other utilities funds in that it generates potential stock holdings by means of a quant-based screening process. The fund utilizes the Intellidex line of products to make this determination, which in turn has bolstered the fund's expense ratio somewhat. Still, if PUI is able to outperform its competitors in the utilities ETF space, it may be well worth the additional cost.
PUI launched in October of 2005 and has a relatively high expense ratio of 0.60%. As of this writing, it maintains 31 holdings.
Invesco S&P 500 Equal Weight Utilities ETF
Coming in second in the list of 2018 top performing utilities ETFs is another product by Invesco. The S&P 500 Equal Weight Utilities fund offers broad exposure to names in the S&P 500 Utilities Index. In 2018, it returned about 7.4% for the year. The companies in RYU's basket run the gamut from telecom services to gas, electric, and water services, fiber-optic cable networks and much more. One thing that sets RYU apart from its competitors is its equal-weighted strategy, which ensures that all component names receive roughly equal allocation. This provides for a balanced strategy which tends to reflect the performance of the utilities sector overall in a way that other utilities ETFs do not.
RYU launched in November of 2006 and has an expense ratio of 0.40%. As of this writing, it holds 29 stocks, each with a relative weight of around 3.5%-3.7%.
Reaves Utilities ETF
The Reaves Utilities ETF, which gained about 6.5% across 2018, is unique among many of its rivals on this list in that it is an actively-managed fund. UTES focuses exclusively on U.S.-listed utilities stocks. Because it is an active exposure product, UTES managers assess name selection and weight based on a variety of metrics. These include historical earnings growth, share price volatility, capital structure and more. For potential customers, the trade-off inherent in the active approach is an expense ratio that is significantly higher than nearly every other sector-specific ETF, including broad, market-cap-weighted funds.
UTES was launched in September of 2015 and has a high expense ratio of 0.95%. It is a small fund, with just $13.4 million in assets under management. As of this writing, UTES holds 24 names, with a particular focus on Nextera Energy Inc. (NEE), which is weighted to nearly 16%.
John Hancock Multi-Factor Utilities ETF
Gaining more than 6.3% in 2018 is the John Hancock Multi-Factor Utilities ETF (JHMU). JHMU focuses on large- and mid-cap stocks from the U.S. market. As the name of the fund suggests, it offers multi-factor exposure. The pool of stocks JHMU draws from includes the largest 1,000 U.S. stocks, meaning that small-caps are essentially eliminated from consideration. JHMU is generally market-cap-weighted, although it also considers value and profitability as it tweaks its holdings. JHMU also focuses overwhelmingly on electric utilities and related companies, with under 10% of its holdings focused on natural gas and water companies.
JHMU was founded in March of 2016 and has an average expense ratio of 0.50%.
First Trust Utilities AlphaDEX Fund
Rounding out the top five utilities ETF for 2018 is the First Trust Utilities AlphaDEX Fund. FXU generated returns of about 5.7% for the year, earning it a spot on our top-performers list. Similar to PUI, FXU uses a quant-based strategy to select potential stocks from the larger Russell 1000 index. This fund focuses primarily on U.S.-based utilities companies, with a tendency toward mid- and large-cap names. FXU is also set up to facilitate a strong dividend yield. As such, it comes with a higher expense ratio than many of its competitors.
FXU launched in May of 2007 and has a relatively high expense ratio of 0.63%. As of this writing, it holds 35 stocks with a strong preference for U.S.-based companies.