What Are Utilities ETFs?
Utilities ETFs passively track a benchmark utilities index that may include electric companies, water utilities, gas companies, and energy traders. Large, publicly traded U.S. utilities include NextEra Energy (NEE), Duke Energy (DUK), Dominion Energy, and Southern Company (SO).
What Are the Benefits?
There are three primary benefits of investing in utilities ETFs:
What To Look for in the Best Funds
If you seek income, look at the SEC yield of utilities ETFs before buying. This yield is based on the 30-day period ending on the last day of the previous month. The yield figure reflects the dividends and interest earned during the period, after the deduction of the fund’s expenses. Funds must report this number to the Securities and Exchange Commission (SEC). While performance is a factor, ETFs are passively managed. Results will closely mirror the benchmark index. This means long-term returns come second to other considerations.
Best Utilities ETFs for This Year and Beyond
The best utilities ETFs will have a combination of high yield and low expenses. Also, when buying ETFs in general, it’s wise to look for funds that have a long history and a large asset base. This provides a good record of the fund’s ability to track its index, and the high relative assets under management (AUM) allow for greater liquidity. With these qualities in mind, here are three of the best utilities ETFs to buy this year:
The Bottom Line
Utilities ETFs can be a smart way to add income-producing stocks to a portfolio. The utilities sector is seen as defensive and therefore a good hold in a down market cycle. While also a relatively stable growth investment, it may not be right for you. As with other concentrated funds that focus on a single sector, it’s wise not to allocate all of your assets to just one fund. The Balance does not provide tax, investment, or financial services or advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.
