6 Utility ETFs Poised for Success in 2022
With the utilities sector outperforming the market in 2022, many investors have begun to diversify into utility ETFs as a type of safe haven hedge. Not onlyis the sector poised to continue beating the market’s major indices through the end of the year, ETFs offer a measure of stability by diversifying across various categories. Risk averse investors will find these ETFs the perfect way to expose themselves to a relatively stable, proven reliable industry.
The question is, which ETFs are best-equipped to maintain momentum in 2022 and deliver market-beating returns? Below, we’ve compiled a look at six of them, including their one-year performance track record and their case for positive returns through the end of the year.
6. Vanguard Utilities Index Fund ETF (VPU)
For investors just looking for a simple, no-frills utility ETF, there’s none better than the Vanguard Utilities Index Fund ETF. Like all Vanguard funds, this ETF has an extremely low expense ratio (0.10%) and is well-diversified across the sector to give investors the balance they expect from an ETF.
The Vanguard Utilities Index Fund ETF is essentially flat year-to-date, but has a one-year return of more than 11%, making it a stalwart choice for investors seeking general exposure to this sector. It tracks the performance of the MSCI U.S. Investable Market Index for Utilities 25/50.
5. Fidelity MSCI Utilities ETF (FUTY)
The Fidelity MSCI Utilities ETF is another accessible utility-focused ETF that’s great for passive investors and those looking for simple exposure to the utilities sector. While it also tracks the MSCI U.S. Investable Market Index for Utilities 25/50, its allocation is more aggressively diversified than VPU.
The Fidelity MSCI Utilities ETF has an attractively low expense ratio of 0.08%. Moreover, like VPU, it has a proven one-year return of more than 11%. With a share price roughly a third of the Vanguard fund, FUTY welcomes investors with the stability they’re looking for from an investment in utilities.
4. Virtus Reaves Utilities ETF (UTES)
Unlike other ETFs on this list, the Virtus Reaves Utilities ETF doesn’t track the MSCI U.S. Investable Market Index for Utilities 25/50. Instead, it derives its composition from a sampling of the utility sector, provided more than 50% of the company’s revenues are attributable to the generation or distribution of electricity, gas or water. As a result, it has a more robust allocation than ETFs like VPU or FUTY.
The expense ratio for UTES registers at 0.49%, representing a middling fee in the realm of ETFs. The fund has rewarded shareholders over the past year with 12% returns; although the fund is down roughly 2% in 2022.
3. Utilities Select Sector SPDR ETF (XLU)
The Utilities Select Sector SPDR ETF seeks to mimic the performance of the Utilities Select Sector Index and does so by allocating 95% of its funds to securities comprising the index. The fund is one of the better-allocated options on the list. And it comprises holdings in electric, water, gas, renewables and integrated utility companies.
The fund’s 12% returns and 0.10% expense ratio put it on par with ETFs like VPU and FUTY, with a share price that tends to hover between the two. With a year-to-date return approaching 1%, it’s delivering above-average performance among ETFs in 2022.
2. Invesco S&P 500 Equal Weight Utility ETF (RYU)
One of the breakaway leaders among utility ETFs this year is the Invesco S&P 500 Equal Weight Utility ETF. RYU is up over 4% year-to-date and has returns of nearly 13% over the past 12 months. With an expense ratio of 0.40%, it’s one of the best options on this list in terms of fee-to-return performance.
This ETF tracks the S&P 500 Equal Weight Utilities Plus Index, allocating approximately 90% to assets held within the index. What’s more, the fund’s allocation has balance across its holdings, with its top 10 holdings each comprising between 3.5% and 3.8% of the fund. This ETF tends to see more volume than the others on this list, according to trading data.
1. John Hancock Multifactor Utilities ETF (JHMU)
The top performer among utility ETFs on this list, the John Hancock Multifactor Utilities ETF is an exceptional investment for those seeking to diversify into the sector. This fund tracks the performance of the John Hancock Dimensional Utilities Index, allocating 80% of its net assets to companies within the index. Specifically, companies larger than the 1001st largest U.S. company (by market cap).
JHMU’s bet on large utility companies has paid off well over the past year: the company has returned nearly 14% to shareholders. The fund is also up more than 4% year-to-date, making it a frontrunner among established utility ETFs.
Should You Invest in Utilities?
If you’re feeling uncertain about the stock market in 2022, you’re not alone. Thankfully, many investors have found a measure of comfort in utility stocks. Moreover, their potential as a stable sector in a volatile market. With sector-specific diversification to further balance risk, utility ETFs are on-par to deliver market-beating returns this year. If you’re allocating into safe haven investments, utilities are a smart bet.
Want more insights into the sector and the potential of utility ETFs to deliver market-beating returns?Discover the best investment newsletters to learn more about how this sector stacks up against the headwinds pushing down the broader stock market. You’ll get the information you need to make smart investments in a sector known for its relative stability.