Utilities ETFs for Your Retirement Portfolio

10/14/2014 7:00 am EST

Focus: ETFS

Given the recent market downtrend, John Burke, of Wall Street Sector Selector, turns back to the popular safe haven utilities ETFs, however, he does stress that from a quantitative easing standpoint, the ‘old fashioned’ favorite—gold—has become as volatile as many of the biotechs.

Utilities ETFs can provide some safe haven investments for your retirement portfolio.

The recent stock market selloff has left many investors concerned about their retirement accounts. The old favorite safe haven investment from the quantitative easing era—gold—has become as risky as a biotech stock. The recent volatility has attracted more investors to
ETFs because the risk is spread over a number of holdings rather than on a single stock, which could put a nice dent on one’s retirement account with a single, downbeat earnings report.

There are actually a number of ETFs focused on the ‘safe haven’ utilities sector, which would make nice additions to one’s retirement portfolio. Utilities can perform well in bear markets as well as bull markets because people—as well as businesses—always need electricity, water, and natural gas.

The most heavily-traded utilities ETF is the Utilities Select Sector SPDR ETF (XLU). XLU enjoys an average daily trading volume of over 10 million shares, so you will not have to worry about getting stuck in this name if you want to sell your shares. One drawback to XLU—as well as most other utilities ETFs—is that its major holding is the controversial Duke Energy (DUK) which constitutes over 9% of the weight of the XLU ETF. Duke has been experiencing a bit of trouble for what it does with coal ash.

If your are looking for a utilities ETF which does not include Duke Energy as any of its top ten holdings, there is the First Trust Utilities AlphaDEX ETF (FXU). FXU enjoys average daily trading volume of over 500,000 shares, so it is no roach motel. You don’t have to worry about the warning that once you get in you may never get out.

Another popular utilities ETF is the Vanguard Utilities ETF (VPU). VPU had been experiencing average daily trading volume of just over 150,000 shares, although it is increasing as an growing number of investors are allocating more of their savings in the utilities sector.

The last word: Investors who are looking for some safe haven ETF ideas for their retirement accounts may want to investigate utilities ETFs.

By John Burke of Wall Street Sector Selector

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