- The oldest available Utilities sector ETF has outperformed an S&P 500 index fund by 0.77% CAGR over the last 20 years
- The Utilities sector is an excellent portfolio diversifier with an ultra-low US Market correlation of 0.38
- There are currently 13 Utilities Sector ETFs available; 7 of these have inception dates that are 10 years old or older
XLU vs S&P 500 index fund: January 1999 – November 2018
Source: https://www.portfoliovisualizer.com/
The oldest and largest Utilities sector ETF is the Utilities Select Sector SPDR® Fund (XLU). Since its’ inception it has outperformed the S&P 500 by 0.77% CAGR. In addition to great long-term returns, the Utilities sector has a lower correlation to US Markets than any other equity asset class. XLU’s current correlation to US Markets is 0.38. Which Equity Asset Class has the Lowest Correlation to the U.S. Stock Market?
XLU vs SPY: December 22, 1998 – December 10, 2018
Source: https://www.koyfin.com/home
According to Morningstar, there are 13 ETFs in the Utilities category. Seven of these ETFs have been available for 10 years or longer. I have compared each of these 7 ETFs head-to-head utilizing the back-testing tools at Portfolio Visualizer and Koyfin. The rankings in the chart below are based solely on long-term performance. Other important factors such as liquidity, quality of assets, and current market valuations were not considered in the rank order.
Source: https://www.morningstar.com/
The 4 best performing Utilities ETFs were RYU, VPU, XLU and PUI. The charts below will show how these ETFs compared with each other and the S&P 500 over the last 12 years.
RYU vs VPU vs XLU vs PUI: December 2006 – November 2018
Source: https://www.portfoliovisualizer.com/
RYU vs VPU vs XLU vs PUI vs SPY: November 7, 2006 – December 10, 2018
Source: https://www.koyfin.com/home
Now that we’ve covered the long-term performance of these top 4 Utilities sector ETFs; let’s look at each of these ETFs’ key features, objectives and product summaries.
RYU – The Invesco S&P 500® Equal Weight Utilities ETF (Fund) is based on the S&P 500® Equal Weight Telecommunication Services & Utilities Index (Index). The Fund will invest at least 90% of its total assets in securities that comprise the Index. The Index equally weights stocks found in the utilities and telecommunication services sectors of the S&P 500® Index. The Fund and the Index are rebalanced quarterly. (Best long-term performance, low volatility)
VPU – Vanguard Utilities ETF – Seeks to track the performance of a benchmark index that measures the investment return of stocks in the utilities sector. Passively managed, using a full-replication strategy when possible and a sampling strategy if regulatory constraints dictate. Includes stocks of companies that distribute electricity, water, or gas, or that operate as independent power producers. (Lowest expense ratio, most diversified, lowest price-to-book, lowest turnover, best 5-year performance)
XLU – The Utilities Select Sector SPDR® Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Utilities Select Sector Index (the “Index”). The Index seeks to provide an effective representation of the Utilities sector of the S&P 500 Index. Seeks to provide precise exposure to companies from the electric utility, gas utility, multi-utility, and independent power producer and energy trader industries. Allows investors to take strategic or tactical positions at a more targeted level than traditional style-based investing. (Lowest market correlation, best single-year performance, highest trading volume, lowest price-to-earnings, highest dividend, best 15-year performance)
PUI – The Invesco DWA Utilities Momentum ETF (Fund) is based on the Dorsey Wright® Utilities Technical Leaders Index (DWA Utilities Technical Leaders Index). The Fund will normally invest at least 90% of its total assets in the securities that comprise the Index. The Index is designed to identify companies that are showing relative strength (momentum), and is composed of at least 30 securities from the NASDAQ US Benchmark Index. Relative strength is the measurement of a security’s performance in a given universe over time as compared to the performance of all other securities in that universe. The Fund and the Index are rebalanced and reconstituted quarterly. (Lowest drawdown during last recession)
The Utilities sector is an excellent way to diversify an equity portfolio without sacrificing performance. Investors in this sector have at least 4 great ETFs to pick from. RYU offers an equal weighted portfolio. VPU has low expenses and excellent diversification. XLU is extremely liquid. PUI weathered the Great Financial Crisis with the lowest drawdowns.
Thank you for taking time to read this article. If you found it useful, please share it with a friend.
Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator
Disclosure: We own shares of RYU and we intend to buy more shares in the future. I am not a professional investment advisor. Please perform your own due diligence or seek assistance from a Registered Investment Advisor prior to investing in any fund mentioned in this article.
Previous Deep Value ETF Accumulator article on the Utility sector: JANUARY 8, 2018 Best Long-Term Performance Utilities Sector ETFs