Utility ETFs are considered reliable investments as they consist of utility companies that provide essential services, such as electricity, water, and natural gas, which remain constant despite the economic conditions. Even in market turbulence, the utility sector is seen as a safe haven due to its stable nature and limited price fluctuations.

Given this positive sentiment, investing in utility ETFs like The Utilities Select Sector SPDR Fund (XLU), iShares U.S. Utilities ETF (IDU), and Fidelity MSCI Utilities Index ETF (FUTY) might be wise choices for safe and steady returns in the market.

As the stock market enters September, historically one of its worst-performing months, many investors are shifting their focus to low-beta sectors like utilities, which are less prone to dramatic market swings.

Moreover, utilities have always been favored for their stable dividends, often referred to as “widow and orphan” stocks due to their low risk and consistent payouts. As interest rates are expected to drop later in the year, the attractiveness of utilities is expected to increase, offering investors solid yields of around 3%.

In addition, the Biden administration’s focus on clean energy through programs like the Powering Affordable Clean Energy (PACE) initiative, which has earmarked $140 million for clean energy projects, utility stocks with significant investments in green energy are set to benefit even further.

Global trends also support the utility sector’s growth prospects. With government spending on infrastructure and clean energy increasing, the utilities market is forecasted to reach $8.83 trillion by 2028, growing at a CAGR of 6.4%.

With that in mind, let’s evaluate the fundamentals of the featured Utility ETFs, starting with number three:

ETF #3: Fidelity MSCI Utilities Index ETF (FUTY)

FUTY provides exposure to growth and value stocks of companies across diversified market capitalization by investing in utility sector stocks. It also aims to track the performance of the MSCI USA IMI Utilities 25/50 Index. This fund is managed by Fidelity Management & Research Company LLC and also co-managed by BlackRock Fund Advisors.

With $1.36 billion in assets under management (AUM), its top holdings are NextEra Energy, Inc. (NEE) with a 13.08% weighting in the fund, followed by Southern Company (SO), Duke Energy Corporation (DUK), and Constellation Energy Corporation (CEG) at 7.66%, 7.10%, and 4.40% weight each, respectively. The ETF has a total of 68 holdings.

The ETF’s expense ratio is 0.08%, lower than the category average of 0.44%. FUTY fund inflows were $52.78 million over the past month and $30.28 million over the past three months.

The fund pays an annual dividend of $1.41, which translates to a 2.89% yield at the current price level. Its four-year average yield is 2.99%. Its dividend payouts have grown at a 4.8% CAGR over the past five years.

FUTY has gained 22.7% over the past year to close the last trading session at $48.85. The fund’s NAV was $48.85 as of September 06, 2024. Also, it has a beta of 0.77.

FUTY’s solid fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

FUTY has an A grade for Trade and Buy & Hold. It is ranked #4 among 13 ETFs in the B-rated Utility ETFs group. Click here to access FUTY’s Peer rating.

ETF #2: iShares U.S. Utilities ETF (IDU)

IDU, managed by BlackRock Fund Advisors, focuses on investing in growth and value stocks of companies operating across the utilities sectors. The fund uses a representative sampling technique to track the performance of the Russell 1000 Utilities RIC 22.5/45 Capped Index. 

The fund has a total of 44 holdings. Its top holdings include NextEra Energy, Inc. (NEE) with a 12.21% weighting, Southern Company (SO) at 7.25%, followed by Duke Energy Corporation (DUK) and Waste Management, Inc. (WM) with 6.67% and 6.18% weightings, respectively.

IDU’s trailing-12-month dividend of $2.17 per share yields 2.25% on the current price level, while its four-year average dividend yield is 2.61%.

The fund has an expense ratio of 0.39% compared to the category average of 0.44%. Over the past six months, IDU’s fund inflows came in at $396.35 million. Also, the ETF has a five-year beta of 0.76.

IDU has gained 21.1% over the past nine months and 25.4% over the past year to close the last trading session at $96.51. As of September 06, 2024, IDU had an AUM of $1.40 billion and an NAV of $96.44.

IDU’s POWR Ratings reflect solid prospects. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

IDU has an A grade for Trade and Buy & Hold and a B for Peer. Of the 13 ETFs in the same B-rated group, it is ranked #3. To access all of IDU’s POWR Ratings, click here.

ETF #1: The Utilities Select Sector SPDR Fund (XLU)

XLU is managed by State Street Global Advisors (SSGA) Funds Management, Inc. and invests in stocks of companies operating across the utilities sector in the markets of the United States. The fund seeks to track the performance of the Utilities Select Sector Index.

The fund has $17.68 billion in AUM. Its top holdings are NEE with a 14.30% weighting, SO at 8.37%, followed by DUK and CEG at 7.76% and 4.80%, respectively. The fund has a total of 32 holdings.

XLU has an expense ratio of 0.09%, lower than the category average of 0.44%. Its fund inflows were $696.85 million over the past month and $3.01 billion over the past six months. Also, it has a 5-year beta of 0.75.

The fund pays an annual dividend of $2.19, translating to a 2.89% yield at the prevailing price level. Its dividend payouts have grown at a 3.6% CAGR over the past three years. The fund’s four-year average yield is 3.09%.

Over the past year, XLU has gained 22.8% to close the last trading session at $75.91. The ETF had an NAV of $76.63 as of September 05, 2024.

XLU’s POWR Ratings reflect this promising outlook. The ETF’s overall A rating equates to a Strong Buy in our proprietary rating system.

XLU has an A grade for Trade and Buy & Hold and a B for Peer. In the Utility ETFs group, it is ranked first. Get all XLU ratings here.

What To Do Next?

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XLU shares closed at $75.91 on Friday, down $-0.73 (-0.95%). Year-to-date, XLU has gained 21.83%, versus a 14.41% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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