The utilities sector warrants consideration by investors for offering a potential hedge against market volatility. Demand for the electricity, gas, and renewable energy that utilities provide is a constant despite market gyrations.
The Utilities Select Sector SPDR Fund (XLU) is a go-to sector ETF, providing a low-cost*, and easily accessible vehicle that goes to the heart of the biggest U.S. companies in the industry. Launched in 1998, the fund has been a stalwart and should be considered in a diversified portfolio.
Energy exposure is critical to a diversified investment portfolio. But energy can also be volatile. That’s where utilities can play a role. The Utilities Select Sector SPDR offers an area in the investment space often overlooked by investors.
XLU is actively traded, as 2022 average daily volume exceeded 15 million shares. With $16 billion** in assets under management and a low total expense ratio of 0.10%*, the fund holds some of the biggest utilities companies in the sector, including 30 companies with a median weighted market cap of $26 billion. And as utilities are known to do by producing consistent dividends, XLU currently is producing attractive dividend income which is paid quarterly to the ETF holders.
The Top Holdings**
XLU tracks a market-cap-weighted index of U.S. utilities stocks drawn exclusively from the S&P 500. The top holdings (with their weightings):
NextEra Energy (15.04%)
Duke Energy (7.74%)
Southern Company (7.32%)
Sempra Energy (5.02%)
Dominion Energy (4.94%)
American Electric Power (4.82%)
Xcel Energy (3.77%)
Consolidated Edison (3.38%)
Public Service Enterprise Group (3.21%)
The top 10 companies represent nearly 60% of the fund’s holdings. The Utilities Index ETF primarily includes companies that produce, generate, transmit, or distribute electricity or natural gas. The other compelling component in this sector is the evolution of renewable energy.
There are developing and interesting dynamics within the utilities sector that may be worth considering.
For instance, the cost of renewable energy materials has been declining. Tax credits, the wave of new development, and the increasing construction of solar panels and wind farms have decreased the overall cost of producing those forms of energy.
But the overarching factor with the utilities sector is that it is an industry that consumers, businesses, and the economies need to function. XLU captures exposure in a lower-volatility manner that monetizes “keeping the lights on.”
The utilities sector ETF – XLU – is a reliable sector vehicle for historically steady earnings and dividends. The companies in the fund literally power our economy and the sector cannot be overlooked.
The ETF is worth a serious consideration. Utilities has long been a key component to a diversified portfolio.
Sector SPDR ETFs divide the S&P 500 index into categories that offer specific exposure to the market through its suite of 11 sector ETFs. For a full lineup of Sector SPDR ETFs, click here.
DISCLAIMER: This is a work of research and should not be taken as investment or financial advice. Therefore, Select Sector SPDRs or the publisher is not liable for any decision made based on the publication.
About the Company:
Select Sector SPDR ETFs offer flexibility and customization opportunities. Many investors have
similar outlooks, but no two are exactly alike. Select Sector SPDR ETFs let investors select the
sectors that best meet their investment goals.
*Ordinary brokerage fees apply
**Holdings, Weightings & Assets as 2/28/23 subject to change
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market. The index is heavily weighted toward stocks with large market capitalizations and represents approximately two-thirds of the total market value of all domestic common stocks. The S&P 500 Index figures do not reflect any fees, expenses or taxes. An investor should consider investment objectives, risks, fees and expenses before investing.
One may not invest directly in an index.
Transparent ETFs provide daily disclosure of portfolio holdings and weightings
All ETFs are subject to risk, including loss of principal. Sector ETF products are also subject to sector risk and nondiversification risk, which generally will result in greater price fluctuations than the overall market. Diversification does not eliminate risk.
An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other information, call 1-866-SECTOR-ETF (732-8673) or visit www.sectorspdrs.com. Read the prospectus carefully before investing.
ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is distributor for the Select Sector SPDR Trust.
Company: Select Sector SPDRs
Contact: Dan Dolan*
Address: 1290 Broadway, Suite 1100, Denver, CO 80203
Country: United States
*Dan Dolan is a Registered Representative of ALPS Portfolio Solutions Distributor, Inc. ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is the distributor for the Select Sector SPDR Trust.
Select Sector SPDR
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