A Select Play on Utilities

09/13/2016 9:00 am EST

Focus: ETFs

Genia Turanova

Editor, Leeb Income Performance

Utilities were not terribly good performers in recent years — but did much better than expected in 2016, thanks largely to near-record lows in bond yields, observes Genia Turanova, income expert and editor of Leeb Income Performance

Our addition of Utilities Select Sector SPDR (XLU) six months ago could hardly have proven more timely.

We noted back then that while utilities are immune neither to competition nor economic conditions, they can benefit investors even when least expected to do so.

We liked this exchange-traded fund for its low 0.14 percent expense ratio, its place as the oldest utility-sector ETF and for its superb cross-category diversification.

While we missed a few months of the run, as of early August, the fund had returned more than 31 percent in 2016 alone and it continues to yield nearly 3.3 percent.

Morningstar rates the fund four stars overall, while it earns five stars, four stars and three stars for its performance over 3-years, 5-years and 10-years.

This is no mere electric utility ETF. It includes many types of utilities, from electrics (62.5 percent of assets) but also multi-utilities (33.3 percent); water (2.3 percent); independent and renewable power producers (nearly 2 percent). The broad diversification serves us well.

Its top five positions are NextEra Energy (NEE), Duke Energy (DUK), Dominion Resources (D), Southern Co. (SO) and Exelon Corp. (EXC).

The weighted average market capitalization of its holdings stands at a hair under $33 billion. Low rates continue to make Utilities Select Sector SPDR an ongoing recommendation.

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By Genia Turanova, Editor of Leeb Income Performance

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