Top ETFs In The Best Performing Sector

July 15, 2016

Anyone who’s been paying attention to the stock market knows utilities have been the place to be this year. Most of the indexes tracking U.S. utilities are up more than 20% this year, handily beating the broad market, which is up 6.5% as of July 13.

Low interest rates have been cited as a key reason for utilities' outperformance, along with a general tendency toward safe-haven assets on the part of investors so far in 2016.

16 Total Utility ETFs

As a safe, relatively predictable industry, there aren't many surprises when it comes to utilities, and that goes for utility ETFs as well. Exchange-traded funds tied to the sector are broadly higher, as can be expected, but there isn't much differentiation among the funds compared with what you might see in other sectors.

There are currently 16 utilities-focused ETFs listed in the ETF.com Utilities channel. With the exception of one that is down 35.1%―the ProShares UltraShort Utilities ETF (SDP)―an inverse product―they're all up so far this year.

SDP's counterpart, the ProShares Ultra Utilities ETF (UPW)―a 2x-leveraged product―is the top  performer in the space, with a gain of 45.7%

US-Focused Utilities ETFs

After UPW, there are nine U.S.-focused utilities ETFs all clustered together, with returns of 21% to 24%. Of these nine, four of them offer broad, large-cap-heavy exposure to the sector.

These include the Vanguard Utilities Index Fund (VPU | A-95), the iShares U.S. Utilities ETF (IDU | A-93), the Fidelity MSCI Utilities Index ETF (FUTY | A-94) and the Utilities Select Sector SPDR Fund (XLU | A-89).

Meanwhile, the Guggenheim S&P 500 Equal Weight Utilities ETF (RYU | A-86) and the PowerShares S&P SmallCap Utilities Portfolio (PSCU | A-31) tilt their exposure toward smaller-cap firms. RYU does this by equal-weighting utilities stocks within the S&P 500, while PSCU does this by holding stocks in the S&P Small Cap 600 and market-cap-weighting them.

Another pair of utilities ETFs, the PowerShares DWA Utilities Momentum Portfolio (PUI | B-84) and the First Trust Utilities AlphaDex Fund (FXU | B-82), add their own twist to the sector by weighting their holdings based on fundamental factors. DWA focuses on firms with price momentum, while FXU focuses on value and growth factors.

Incidentally, two new ETFs that launched this year, the John Hancock Multifactor Utilities ETF (JHMU) and the iShares Edge MSCI Multifactor Utilities ETF (UTLF), also focus on factors. JHMU weights its holdings based on size, value, momentum and profitability. UTLF weights them based on size, value, momentum and quality.

Perhaps the most unique utility ETF of the bunch is the Reaves Utilities ETF (UTES | D-79). It's the only actively managed utility ETF fund on the market, and it’s easily kept pace with its passive ETF counterparts despite the largest expense ratio in the segment.

Ticker Fund Expense Ratio AUM Description YTD Performance (%)
PUI  PowerShares DWA Utilities Momentum Portfolio 0.60% $232.21M Momentum factor 23.82
UTES  Reaves Utilities ETF 0.95% $11.24M Actively managed 22.92
FXU  First Trust Utilities AlphaDEX Fund 0.66% $1.82B Value and growth factors 22.6
VPU  Vanguard Utilities Index Fund 0.10% $2.61B Broad, market-cap-weighted 22.01
RYU  Guggenheim S&P 500 Equal Weight Utilities ETF 0.40% $295.71M Equal-weighted 21.78
IDU  iShares U.S. Utilities ETF 0.45% $1.16B Broad, market-cap-weighted 21.7
FUTY  Fidelity MSCI Utilities Index ETF 0.08% $277.24M Broad, market-cap-weighted 21.64
XLU  Utilities Select Sector SPDR Fund 0.14% $8.32B Broad, market-cap-weighted 21.53
PSCU  PowerShares S&P SmallCap Utilities Portfolio 0.29% $153.62M Small caps 21.32
JHMU John Hancock Multifactor Utilities ETF 0.50% $5.34M Size, value, momentum, profitability factors N/A
UTLF iShares Edge MSCI Multifactor Utilities ETF 0.35% $2.66M Size, value, momentum, quality factors N/A

 

Global Utilities ETFs

The final batch of utility ETFs are globally focused, which contrasts with the aforementioned funds that are solely focused on the U.S.

These ETFs include the iShares Global Utilities ETF (JXI | A-85), the WisdomTree Global ex-US Utilities Fund (DBU | C-74) and the SPDR S&P International Utilities Sector ETF (IPU | B-80). There is more divergence of performance among these three, with a range of returns from 4.6% to 13.5%.

Out of the three, JXI is the best performer in 2016, thanks to its exposure to surging U.S. utilities. Its broad, market-cap-weighted exposure to the global utility space gives the U.S. a 57% weighting in the fund.

On the other hand, DBU and IPU completely exclude U.S. utilities. In turn, the United Kingdom is the largest country exposure for both funds. DBU weights its holdings based on dividends, while IPU weights them based on market cap.

Ticker Fund Expense Ratio AUM Description YTD Performance (%)
JXI iShares Global Utilities ETF 0.48% $168.57M Broad, market-cap-weighted 13.52
DBU WisdomTree ex-US Utilities Fund 0.58% $15.38M Ex-US, dividend-weighted 7.82
IPU SPDR S&P International Utilities Sector ETF 0.40% $32.1M Ex-US, market-cap-weighted 4.59

 

Contact Sumit Roy at [email protected].

 

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