The Best Utility ETFs for Income Investors

PUBLISHED Nov 30, 2022, 12:55:18 PM        SHARE

img
imgStaff Writer

The Top Utility ETFs for Income Investors

1). iShares Global Utilities ETF (JXI)

2). Tied for second: Utilities Select Sector SPDR Fund (XLU)

2). Tied for second: Vanguard Utilities Index Fund (VPU)

2). Tied for second: Virtus Reaves Utilities ETF (UTES)

3). Fidelity MSCI Utilities Index ETF (FUTY)

4). Invesco S&P SmallCap Utilities & Communication Services ETF (PSCU)

5). Vanguard Utilities Index Fund Admiral Shs (VUIAX)

6). iShares U.S. Utilities ETF (IDU)

7). First Trust Utilities AlphaDEX Fund (FXU)

8). Invesco S&P 500 Equal Weight Utilities ETF (RYU)

9). Invesco DWA Utilities Momentum ETF (PUI)

10). Global X Renewable Energy Producers ETF (RNRG)

1). iShares Global Utilities ETF (JXI)

  • APR: 3.40%
  • Standard Deviation: 1.26%
  • Max Drawdown: -34.20%
  • Yield: 3.22%
  • Expense Ratio: 0.40%

Lights on Earth

Image by WikiImages from Pixabay

JXI is our pick as the top utility ETF for income investors. The ETF tracks the S&P Global 1200 utilities sector and is a capped index. With the capped index, no holding can be more than 10% of the fund with all holdings market-cap weighted. The JXI is our top pick due to its low volatility, drawdown, and yield. As of November, 2022, JXI had the highest yield and the lowest 5-year volatility versus its counterparts. Its expense ratio is higher than its peers, but it makes up for it with less volatility and consistent annual returns. JXI likely reached the top of our list due to its index expanding beyond the United States. The ETF is mostly in the United States, followed by Europe, Canada, Japan and Australia.

JXI countries

Source: https://www.etf.com/JXI

One concern about JXI is that its governance allows it to invest up to 20% of its assets in futures, options, swap contracts, cash and cash equivalents. That is quite high even if the derivatives are synthetic representations of the index. That means up to 20% of the fund may not be invested in assets that will yield dividend income for the investor. However, as of the writing of this article, JXI has over 99% of their assets invested in utilities while only 0.18% is invested in cash and/or derivatives.

2). The Tie for Second: XLU, VPU, and UTES

It’s a tie

Image by Darby Browning from Pixabay

Basically, from an investment standpoint, XLU and VPU are the same ETF. They have the same expense ratio, the same volatility, the same 5-year stock performance, and the same yield. And of course this is the case. Even though they track different indices, they have the exact same top 10 holdings, in the exact same order of assets held. Now, each asset is held at different percentage of the portfolio, but these are such insignificant differences that its no wonder the ETFs are practically the same.

VPU vs XLU

Source: Yahoo! Finance

The Virtus Reaves utilities ETF (UTES) is a different consideration. UTES is the top ETF on this list in terms of APR and ranks well for volatility. Where UTES is by having a high expense ratio and a low yield. UTES is an actively managed ETF so its been able to hedge against the recent downturn in the stock market. This downturn has affected utilities even as they’ve been used as a hedge in the market, to see this phenomenon, read our article, Southern Company – A Buy but Not Without Risk. In the article, we can watch as Southern Company is used as a hedge, until the overall market falls below resistance lines. UTES is an ETF to consider as an actively managed alternative to XLU and VPU. While you have to pay a higher expense ratio you get a managed fund that has proven it can return a higher APR while keeping volatility low. Even though it is tied with VPU and XLU, if I had to choose, I would choose APR and volatility management over yield and expense ratio in this particular case. The higher expense ratio doesn’t offset the higher performance UTES has returned to its investors.

Utilities Select Sector SPDR Fund (XLU)

  • APR: 5.28%
  • Standard Deviation: 1.42%
  • Max Drawdown: 36.70%
  • Yield: 3.04%
  • Expense Ratio: 0.10%

Vanguard Utilities Index Fund (VPU)

  • APR: 5.11%
  • Standard Deviation: 1.41%
  • Max Drawdown: 36.82%
  • Yield: 3.05%
  • Expense Ratio: 0.10%

Virtus Reaves Utilities ETF (UTES)

  • APR: 7.31%
  • Standard Deviation: 1.34%
  • Max Drawdown: 35.71%
  • Yield: 2.16%
  • Expense Ratio: 0.49%

3). Fidelity MSCI Utilities Index ETF (FUTY)

  • APR: 5.22%
  • Standard Deviation: 1.41%
  • Max Drawdown: 37.07%
  • Yield: 2.88%
  • Expense Ratio: 0.08%

For all intents and purposes, FUTY is nearly interchangeable with XLU and VPU. It does have the lowest expense ratio of all the ETFs on this list, but its average in terms of the other parameters.

The top 8 holdings of FUTY match XLU and VPU exactly

FUTY has nearly the same top 10 holdings as XLU and VPU. The only difference is that FUTY has WEC Energy Group Inc (WEC) in its top 10 while XLU and VPU have American Water Works (AWK).
From a retail investor’s perspective, investing in FUTY, XLU, or VPU are basically the same investment.

4). Invesco S&P SmallCap Utilities & Communication Services ETF (PSCU)

  • APR: 0.30%
  • Standard Deviation: 1.37%
  • Max Drawdown: 30.36%
  • Yield: 2.65%
  • Expense Ratio: 0.29%

TL;DR: PSCU is an ETF for sector rotation investors, not utility investors or income investors

Unfortunately, even though PSCU made it as #4 on our list, it really is not the ETF for utility investors. Two stocks in its top 10 holdings include AMC Networks Inc (AMCX) and Shenandoah Telecommunications Co (SHEN). These holdings create a distinctly different investment profile for PSCU which stands out against the other typical Utility ETFs. While its drawdown is surprisingly low (likely due to a diversification into another sector), its 5-year APR is stagnant at 0.30%. Again, this is due to the spread of investments its investing in.

While there is nothing wrong with PSCU as an investment, PSCU should not be used as a utility ETF investment.

5). iShares U.S. Utilities ETF (IDU)

  • APR: 4.89%
  • Standard Deviation: 1.39%
  • Max Drawdown: 36.18%
  • Yield: 2.41%
  • Expense Ratio: 0.39%

IDU is a similar investment to XLU, VPU and FUTY

Long story short, you can get a better investment with XLU and VPU with a lower expense ratio. Except for Waste Management (WM), IDU has basically the same top 10 stocks as XLU and VPU. Waste Management is an understandable choice, but its typically considered an industrial stock.

For income, dividend, and utility investors, you’ll get an overall better investment with our other top options.

6). First Trust Utilities AlphaDEX Fund (FXU)

  • APR: 4.90%
  • Standard Deviation: 1.35
  • Max Drawdown: 34.81%
  • Yield: 1.98%
  • Expense Ratio: 0.64

FXU is a equal weighted index. This gives it more exposure to mid-cap and small-cap utilities.

FXU is not interchangeable with XLU, VPU, and FUTY. This ETF has a specific use

FXU (and our next ETF, RYU) is for investors looking for higher long-term gains and are okay going through more turbulence. FXU and RYU is not for retirement accounts, wealth preservation strategies, or pure income strategies.

7). Invesco S&P 500 Equal Weight Utilities ETF (RYU)

  • APR: 6.20%
  • Standard Deviation: 1.42%
  • Max Drawdown: 37.43%
  • Yield: 2.43%
  • Expense Ratio: 0.40%

RYU does exactly what it’s meant to do as an investment. RYU is an equal weight ETF; this means it has more exposure to small-cap and mid-cap stocks. This increases the APR of the ETF, but also increases the volatility of the ETF.

RYU has one of the highest APRs on this list, but also is one of the lowest in terms of volatility metrics.

RYU is not interchangeable with XLU, VPU, and FUTY. This ETF has a specific use

Invesco DWA Utilities Momentum ETF (PUI)

  • APR: 4.08%
  • Standard Deviation: 1.42%
  • Max Drawdown: 36.00%
  • Yield: 2.11%
  • Expense Ratio: 0.60%

Momentum

Image by 3D Animation Production Company from Pixabay

So in theory, a utility investment like this should have a very specific profile. Its APR should be high, its standard deviation should be high (which is fine in a momentum strategy), but its drawdown should be lower. The fund should be able to minimize drawdowns by detecting momentum changes in its procedure. Its max drawdown, though slightly better, is only minimally better than standard utility ETFs VPU and XLU. PUI is not performing as a momentum ETF, and hence isn’t worth the time or high expense ratio.

How we measure the Best Utility ETFs

Drawdown

Drawdown is the worse-case loss a stock feel during a given time interval. In this analysis we looked back 5 years. Check out our article on the safest utility stocks to invest in to learn more about drawdown.

Standard Deviation

Our analysis looks back at 5 years of daily stock changes (this is roughly 242 trading days a year). We take the standard deviation of those daily changes. Learn more about standard deviation in our article on the safest utility stocks to invest in.

Performance

For our analysis, we measured the annual rate of return of the ETF over the last five years.

Yield

Any dividends made by the ETF are passed through to the investor. This is the latest yield of the ETF. The yield will change based on the basket of stocks and instruments the ETF is composed of. ETFs that use derivatives to represent the index they follow may not receive dividends, lessening yield.

Expense Ratio

An expense ratio is the cost of running the fund as a percentage of total assets. Actively managed ETFs will typically require a higher expense ratio. The lower the expense ratio, the less you have to pay administrators and portfolio managers to have a basket of utility stocks.

Notes

Some exchange traded funds were not included in the list due to their high exposure to swaps and other derivative instruments. These ETFs include:

  • ProShares Ultra Utilities (UPW)
  • ProShares UltraShort Utilities (SDP)
  • Global X Renewable Energy Producers ETF (RNRG)

Further Readings - Stock Ideas

Further Readings - A Guide to Investing in Utilities

VPU, Buy

Vanguard Group, ...
Return: 15.11%

VPU, Buy

Return: 15.11%


Sound investments
don't happen alone

Find your crew, build teams, compete in VS MODE, and identify investment trends in our evergrowing investment ecosystem. You aren't on an island anymore, and our community is here to help you make informed decisions in a complex world.

More Reads
Warren Buffett Stocks: Louisiana-Pacific Corporation
Image

Louisiana-Pacific Corporation (LPX) is a leader in high-performance building solutions. The company manufactures engineered wood building products for builders, remodelers, and homeowners across the globe.

The Safest Utility Stocks to Invest in Q4 2022
Image

We found the top 5 safest utility stocks based on volatility, drawdown, dividend policy, and dividend cuts. Why are utilities safe? We'll explain why.

7 High Return-of-Capital REITs
Image

Real Estate Investment Trusts (i.e., “REITs”) are tax-advantaged income vehicles that have become increasingly popular with investors and institutions in recent years.

November 2022 Stock Considerations
Image

With a new trading month already in full swing it is time, once again, to highlight some of my potential stock purchases.

Skyworks Solutions (SWKS) Stock: An Undervalued Chipmaker
Image

Over the past five weeks, the market has been up 14.7%. Also, after the CPI report was issued last Thursday morning, the market and almost all the stocks had a tremendous run-up. In two days, the market is up nearly 7%.

2 Recession-Proof Utility Stocks With Safe Dividends
Image

The Fed has raised the Fed Funds rate six times this year to combat inflation and the last four times at a 0.75% clip. The current 4% rate is the highest in well over a decade. But the Central Bank has indicated that it will take more pain to get that inflation genie back in the bottle.

WestRock (WRK) A Dividend Stock Comeback Story
Image

Yes, this is a random WestRock (WRK) dividend stock, come back story. Why is it a comeback? WestRock decimated their dividend during the height of the pandemic from COVID-19. One of the world’s biggest, packaging companies reduced their dividend to $0.20 per share, per quarter from the high of $0.465.

AEP to Focus Capital Investments on Regulated Businesses, Reaffirms Operating Earnings Growth Rate of 6 to 7 Percent
Image

Reaffirmed 2022 operating earnings guidance range of $4.97-$5.07 per share and midpoint of $5.02; 2023 operating earnings guidance range of $5.19 to $5.39 per share; Five-year, $40 billion capital plan emphasizes investment in wires and renewables

Southern Company - A Buy but Not Without Risks
Image

We assess Southern Company to be a buying opportunity. For retail investors, this may be a good time to dollar-cost average into a position in SO.

Dividend Kings in Focus: V. F. Corporation
Image

V.F. Corporation is a giant in the apparel industry. The company’s annual sales amount to nearly $12 billion, but the company has humble beginnings. It started all the way back in 1899 and has seen many twists and turns in the 123 years since.

Procter & Gamble Stock: Recession Resistant Dividend Aristocrat
Image

When volatility grips the stock market, as it has this past year, income investors should focus on quality dividend growth stocks.

Dividend Income Summary: Lanny’s October 2022 Summary
Image

This is what dividend investing is all about! Investing in dividend stocks allows YOU to earn dividend income, the best passive income stream! Bias, you better believe it.

10 Compelling ESG Stocks That Pay Dividends Now
Image

In the world of investing, the goal is always to compound wealth as efficiently as possible. We think the best way to do that is to buy high-quality dividend stocks, reinvest the dividends, and stay the course over a number of years. However, investors can also infuse their own personal preferences or beliefs into their investing strategy, and still make great returns.

What are the Dividend Policies of the Top Utility Stocks
Image

When an income investor researches utility stocks, the dividend policy is an important decision factor. Here are the dividend policies of the top utility stocks and what they say about the stock.

AMC Stock Forecast, Analysis, Price & News | Is AMC stock a buy
Image

Based on the stock performance over the previous 8 years, AMC has traditionally increased by 80.5% during the following 52 weeks. Learn more!

Is Planet Fitness a Buy or Sell? PLNT target price
Image

Based in Hampton, New Hampshire, Planet Fitness (NYSE:PLNT) is an American fitness facility franchisor and operator. Let's explore it!

Dividend Stock Watch List: Lanny’s November 2022 Edition
Image

Welcome back to another dividend stock watch list article! The stock market is still down almost 19% year-to-date, but the last full week of October there definitely was a big push!

Is Verizon a Good Dividend Stock?
Image

Despite the recent uptick, the bear market is still growling in 2022. The Nasdaq and S&P 500 Index are down more than 20% each, while the Dow 30 is doing somewhat better. Consequently, many high-quality stocks’ stock prices have also declined, along with valuations. One such stock is Verizon Communications (VZ), trading near its 52-week low and the lowest price in a decade. But is the stock a value trap, or is Verizon a good dividend stock?

AWK Stock Forecast - Is American Water Works A Good Stock To Buy?
Image

American Water Works (AWK) is a good stock to buy. Investors can take advantage of the lower price of this utility stock and get a stable dividend every quarter. AWK stock forecast is also positive.

Recent Stock Purchase October 2022
Image

As you know by now I make a stock purchase every single month no matter what is going on in the world and despite the doom and gloom headlines. Perhaps I am naive or more of an optimist that we will get through these dark financial times somehow. Either way, I have been busy buying up some stock this month and was happy to put some fresh and recycled capital to work to try and recoup some of my lost dividend income courtesy of the numerous cuts bestowed upon my portfolio in recent years.

Resources for Publishers
Resources for New Investors
Boosted with BossCoin
Financial Literacy Leaders
user_profile
Tom Hamilton
user_profile
Wise Intelligent
user_profile
Mark Robertson
user_profile
Kevin Matthews II
user_profile
Akeiva Ellis
user_profile
Brendan Dale
user_profile
Kenneth Chavis IV
user_profile
Sharita Humphrey