Although the stock market has come back strong, you've still got
good reason to think about
utility exchange traded funds (ETFs)
and the benefits they can offer any portfolio.
The electric utilities sector holds many dividend plays that
will help cushion a growth portfolio from its occasional dips,
writes YCharts for iStockAnalyst
. As the the market makes gains, investors pull money out of
utilities for riskier plays, which has left many utilities
- Utilities are safe, no-surprise plays. These companies used
to operate as government-endorsed monopolies that control the
whole chain of production through distribution. Now, deregulated
electric utilities are competing for customers, and many operate
in non-regulated businesses, like trading energy futures or
building power plants on speculation. As a result, utilities may
cut their dividends since earnings didn't meet expectations. [
M&A Activity May Charge Up Utility ETFs.
- For the investors who are still looking to utilities, a
company's willingness and ability to consistently payout
dividends are among the top draws.
- Utility ETFs are experiencing an influx in interest from
boomers as they make the transition to fixed-income investments
for their retirements,
according to the Wall St. Cheat Sheet
. Rising energy consumption and a stronger economy also adds
strength to the utilities sector.
The Wall St. Cheat Sheet provides a couple of utility ETFs to
keep an eye on:
Utilities Select Sector SPDR Fund (NYSEArca:
XLU is highly liquid and a good way to diversify into U.S.
utilities. It also boasts a 4.7% dividend.
iShares S&P Global Utilities Sector Index Fund
. JXI is a global utilities play. Though not as liquid, the fund
could better be served as a long-term play. It has a respectable
First Trust NASDAQ Smart Grid Infrastructure (
. GRID provides exposure to the clean-energy utilities plays. It
should be noted that the fund does trade at a rather low
If you want to play bullish or bearish sentiment toward the
sector, two options for that are:
ProShares Ultra Utilities Fund (
. UPW is a leveraged 2x daily bull, maximizing the daily moves of
the underlying index.
ProShares UltraShort Utilities Fund (
. SDP is a leveraged 2x daily bear, a good way to play the sector
if it falters short- or long-term.
For more information on the utilities sector, visit our
Max Chen contributed to this article