2 Lower-Risk Utility ETFs That Could Provide Shelter From The Bear Market Storm
Wall Street is debating how deep the current broad market selloff can get while investors are seeking ways to shelter holdings amid mounting concerns that inflation may linger for longer than expected, dampening economic growth.
The threat of ongoing bear markets is a reminder that preserving wealth in long-term portfolios requires diversification across different sectors. During such turbulent periods, utility stocks receive increased attention.
The sector comprises companies that provide essential services, including water, gas, electricity, and sewage removal. Since their services are deemed necessities, utilities see steady demand regardless of the state of the economy.
As well, as the past year has shown, these companies have the ability to increase prices and pass costs on to customers. Which means they can also enjoy steady earnings growth which enables them to offer stable dividends for long-term shareholders.
Plus, as one of the few corners of the market that show resilience to volatility , the utility sector has outperformed the broad market in 2022. For example, the Dow Jones Utility Index has returned 2.5% since January.
Similarly, the Utilities Select Sector SPDR Fund (NYSE: XLU ) is up 3.4% in 2022. In addition, the fund’s current price supports a dividend yield of 2.59%.
By comparison, the S&P 500 and the Dow Jones Industrial Average have lost around 17.2% and 12.1% over the same period.
Here are two utility exchange-traded funds (ETFs) for those looking for a lower-risk alternative to high-growth names.
1. First Trust Utilities AlphaDEX Fund
- Current Price: $34.58
- 52-week range: $29.48 - $35.38
- Dividend yield: 2.08%
- Expense ratio: 0.64% per year
The first fund on today’s list is the First Trust Utilities AlphaDEX Fund (NYSE: FXU ) which offers access to large- and mid-capitalization (cap) US utilities. It began trading in May 2007, and net assets are shy of $363 million. Fund managers rely on growth and value metrics, such as price appreciation, cash flow, price-to-sales ratio, and return on assets.
The FXU, which tracks the StrataQuant Utilities Index, has 40 holdings. In terms of sub-sectors, we see electricity (65%), gas, water & multi-utilities (27.7%), and water and disposal services (7.3%).
About 40% of the portfolio is held in the leading 10 stocks. They include NRG Energy (NYSE: NRG ); UGI (NYSE: UGI ); Avangrid (NYSE: AGR ); National Fuel Gas Company (NYSE: NFG ); and Exelon (NASDAQ: EXC ).
FXU hit a record high on Apr. 21. The ETF is up 5.8% since January and 11.9% over the past 12 months. Trailing price-to-earnings (P/E) and price-to-book (P/B) ratios stand at 16.62x and 1.91x.
2. iShares Global Utilities ETF
- Current Price: $65.36
- 52-week range: $58.86 - $67.69
- Dividend yield: 2.78%
- Expense ratio: 0.43% per year
The most recent Utilities Global Market Report highlights that:
“The global utility market is expected to grow from $5,488.88 billion in 2021 to $5.969.68 billion in 2022 at a compound annual growth rate (CAGR) of 8.8%.”
The market could well exceed $8.1 trillion in 2026.
Next (LON: NXT ) on our list is the iShares Global Utilities ETF (NYSE: JXI ), which provides exposure to global utility names. The fund, which tracks the S&P Global 1200 Utilities (Sector) Capped Index, was first launched in September 2006.
Close to two-thirds of the companies in JXI come from the US, followed by the UK (6.5%), Spain (6.2%), Italy (4.6%), and Canada (3.5%).
Electric utilities have the most significant slice in the portfolio (59.3%). Next are multi-utilities (29.5%), gas companies (5%), water stocks (2.9%), and independent power producers and energy traders (2.8%).
The ETF has a portfolio of 66 stocks, though the top 10 holdings make up roughly 45% of $194 million in net assets. NextEra Energy (NYSE: NEE ); Duke Energy (NYSE: DUK ); Southern Company (NYSE: SO ); Spain's Iberdrola (BME: IBE ); and Dominion Energy (NYSE: D ) lead the names on the roster.
JXI is up 1% year-to-date and has returned 3.7% over the past 12 months. Trailing P/E and P/B ratios stand at 20.71x and 2.09x. We believe both funds deserve further due diligence and could find a place in long-term portfolios.
Looking to get up to speed on your next idea? With InvestingPro+ you can find
- Any company’s financials for the last 10 years
- Financial health scores for profitability, growth, and more
- A fair value calculated from dozens of financial models
- Quick comparison to the company’s peers
- Fundamental and performance charts
And a lot more. Get all the key data fast so you can make an informed decision, with InvestingPro+. Learn More »
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.
Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb
Drop an image here or