It is not hyperbole to say that a large percentage of
investors that have invested in a utilities ETF have either done
so with U.S.-focused products such as the Utilities Select Sector
) or the Vanguard Utilities ETF (NYSE:
That has not been a bad idea. Over the past three years, a
relevant time frame because utilities are long-term investments,
XLU and VPU are up 42.8 percent and 44.5 percent, respectively,
including dividends paid. Those returns have also been accrued
with significantly lower volatility
than global utilities ETFs
Now might be the time to give global utilities funds a look
with ETFs such as XLU trading at valuations that appear rich.
Some analysts have noted international utilities ETFs are
trading at noticeable discounts to U.S. rivals
and their historical averages
Two candidates to consider are the iShares S&P Global
Utilities Index Fund (NYSE:
) and the WisdomTree Global ex-US Utilities Fund (NYSE:
). Making this ETF Showdown all the more compelling are some
significant differences between the two ETFs. For starters,
"global" as it applies to JXI means U.S.-based utilities loom
large in this ETF. Those stocks account for over 51 percent of
On the other hand, DBU excludes U.S. utilities altogether. All
told, DBU offers exposure to 26 countries. Ten countries account
for over 95 percent of JXI' weight. Country exposure leads to
another noteworthy difference between the two. JXI's top eight
country weights are developed markets. Investors have to scroll
down to the ninth-largest country weight, Brazil at just 1.3
percent, to find emerging markets exposure in that ETF.
Conversely, emerging markets loom large in DBU. Brazil is that
ETF's largest country concentration at 10.4 percent. Overall, 11
developing nations are represented in DBU and they combine for
about 32 percent of the fund's weight.
The trade-off in opting for DBU's emerging markets exposure is
predictable. Investors end up embracing a more volatile fund.
Over the past three years, DBU's volatility has been 22.3
percent, 410 basis points higher
. Perhaps by virtue of the added emerging markets exposure, DBU
is also slightly more expensive than its iShares rivals in terms
of fees. DBU charges 0.58 percent per year while JXI charges 0.48
Income investors might want to consider paying up DBU, though.
That ETF has a 30-day SEC yield of 4.59 percent compared to 3.82
percent for JXI. One reason for DBU's higher yield likely comes
by way of its weight to Brazil. Brazilian utilities have
traditionally been among the best dividend payers in South
America's largest economy.
There is a rub, though. Yields on Brazilian utilities are seen
as rising for all the wrong reasons. Share prices have been
falling recently on news the government is looking to implement
stricter price controls,
according to MarketWatch
JXI's has some strikes against, too. Namely valuation. The
ETF's price-to-earnings ratio is almost 18, which is well above
XLU's. So if XLU's looks sort of expensive, than JXI is quite
The bottom line here is DBU and JXI each have some pros and
cons. A draw is in order in this showdown with a nod to DBU for
those that embrace risk. Risk-averse investors looking for some
global utilities exposure should prefer JXI.
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