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Should You Invest in the Utilities Select Sector SPDR ETF (XLU)?

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Designed to provide broad exposure to the Utilities - Broad segment of the equity market, the Utilities Select Sector SPDR ETF (XLU - Free Report) is a passively managed exchange traded fund launched on 12/16/1998.

Retail and institutional investors increasingly turn to passively managed ETFs because they offer low costs, transparency, flexibility, and tax efficiency; these kind of funds are also excellent vehicles for long term investors.

Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Utilities - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 6, placing it in top 38%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $16.24 billion, making it the largest ETF attempting to match the performance of the Utilities - Broad segment of the equity market. XLU seeks to match the performance of the Utilities Select Sector Index before fees and expenses.

The Utilities Select Sector Index seeks to provide an effective representation of the Utilities sector of the S&P 500 Index.

Costs

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Annual operating expenses for this ETF are 0.09%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 3.01%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Utilities sector--about 100% of the portfolio.

Looking at individual holdings, Nextera Energy Inc (NEE - Free Report) accounts for about 13.80% of total assets, followed by Southern Co/the (SO - Free Report) and Duke Energy Corp (DUK - Free Report) .

The top 10 holdings account for about 59.27% of total assets under management.

Performance and Risk

The ETF return is roughly 16.76% and it's up approximately 17.30% so far this year and in the past one year (as of 08/07/2024), respectively. XLU has traded between $56.19 and $74.22 during this last 52-week period.

The ETF has a beta of 0.57 and standard deviation of 18.12% for the trailing three-year period, making it a medium risk choice in the space. With about 33 holdings, it has more concentrated exposure than peers.

Alternatives

Utilities Select Sector SPDR ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XLU is a sufficient option for those seeking exposure to the Utilities/Infrastructure ETFs area of the market. Investors might also want to consider some other ETF options in the space.

IShares U.S. Utilities ETF (IDU - Free Report) tracks Dow Jones U.S. Utilities Index and the Vanguard Utilities ETF (VPU - Free Report) tracks MSCI US Investable Market Utilities 25/50 Index. IShares U.S. Utilities ETF has $1.40 billion in assets, Vanguard Utilities ETF has $6.01 billion. IDU has an expense ratio of 0.40% and VPU charges 0.10%.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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