Buy These 2 Utilities ETFs to Protect Your Portfolio from a Bear Market

NYSE: XLU | SPDR Select Sector Fund - Utilities News, Ratings, and Charts

XLU – The Fed’s plans to hike interest rates aggressively to curb runaway inflation and the consequences of the ongoing Russia-Ukraine war are wreaking havoc on the stock market. This, coupled with rising recession fears, is expected to keep market sentiment bearish in the near term. Therefore, we think it could be wise to bet on utilities ETFs Utilities Select Sector (XLU) and Vanguard Utilities (VPU) for stable returns.

The rising probability of aggressive interest rate hikes to curb inflation and intensifying geopolitical strife are wreaking havoc on the stock market. Investor sentiment has been dampened significantly over the past few weeks. The bearish sentiment measure by the American Association of Individual Investors has recorded a reading of 59.4%, the highest since March 2009. Moreover, former Fed vice chair Roger Ferguson recently conceded that “A recession at this stage is almost inevitable.”

Amid such bearish sentiment, the utility industry could help investors cushion their portfolios because relatively inelastic demand for electricity, water, and natural gas help companies in this space perform steadily irrespective of market or economic conditions. Furthermore, the dividend pay-outs of utility companies could help generate a steady income stream.

Given this backdrop, we think betting on quality ETFs Utilities Select Sector SPDR ETF (XLU - Get Rating) and Vanguard Utilities ETF (VPU - Get Rating) could be safer to protect your portfolio from a bear market.

Utilities Select Sector SPDR ETF (XLU - Get Rating)

One of the most popular alternatives for investors trying to gain exposure to the U.S. utility sector, XLU is useful for establishing low-risk equity exposure. It is a stable fund, ideal for those with a tilt towards the low beta sector of the U.S. market.

With $15.61 billion in assets under management (AUM), XLU’s top holdings include NextEra Energy, Inc. (NEE), with a 13.91% weighting, followed by Duke Energy Corporation (DUK) at 8.44%, and Southern Company (SO) at 7.73%. It currently has 30 holdings in total. Over the past month, the ETF’s net inflows were $982.60 million. In addition, its 0.10% expense ratio compares favorably to the 0.43% category average.

XLU pays a $2.01 annual dividend, which yields 2.85% at the prevailing price. Its four-year dividend yield stands at 3.11%. Its dividends have increased at 3.7% CAGR over the past five years. Over the past year, the fund has gained 5.7%.

It is no surprise that XLU has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In addition, it has an A grade for Trade and a B grade for Buy and Hold.

XLU is ranked #3 of 13 ETFs in the Utility ETFs group. Click here to see all the XLU ratings.

Vanguard Utilities ETF (VPU - Get Rating)

VPU offers exposure to the domestic utility sector with low volatility or low risk and high dividend yields. It is more appealing to investors looking to establish a shorter-term tactical tilt or make a sector rotation play.

NEE has a 13.80% weighting in the fund as its top holding, followed by DUK at 7.13% and SO at 6.38%. VPU has $6.26 billion in AUM. It has 66 holdings in total. Its net inflows came in at $224.15 million over the past month. Its 0.10% expense ratio is lower than the 0.43% category average.

VPU pays a $4.28 dividend annually, yielding 2.79% at the current price. Its four-year average dividend yield stood at 3.03%. Its dividends have increased at a 3.34% CAGR over the past five years. The fund has gained 5% over the past year.

VPU’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which translates to a Buy in our proprietary rating system.

It has an A grade for Trade and a B grade for Buy & Hold grade. VPU is ranked #4 in the Utility ETFs group. Click here to see VPU’s Peer grade.

Want More Great Investing Ideas?

3 Stocks to DOUBLE This Year

Top 10 Stocks for 2022

Bear Market Scare? Read Before Your Next Trade

7 SEVERELY Undervalued Stocks


XLU shares were trading at $71.24 per share on Tuesday morning, up $0.71 (+1.01%). Year-to-date, XLU has gained 0.19%, versus a -12.47% rise in the benchmark S&P 500 index during the same period.


About the Author: Riddhima Chakraborty


Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
XLUGet RatingGet RatingGet Rating
VPUGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Stock Market Update: It’s Complicated!

The S&P 500 (SPY) may have bounced 17% from recent lows, but the outlook for stocks from here is...in a word...COMPLICATED. Read on to get Steve Reitmeister full market outlook and trading plan for this complicated market environment.

Becoming More Bullish on Stocks, But...

Stocks are on a roll with the S&P 500 (SPY) up more than 10% from the recent lows. Before you start getting too giddy, you should read this updated market outlook and trading plan Steve Reitmeister.

Stock Market Held Hostage

Uncertainty is the term most often applied to this stock market. Uncertainty over tariffs. Uncertainty of whether the S&P 500 (SPY) will fall into bear territory. Uncertainty over what happens next. Steve Reitmeister dives into the uncertainty to make sense of the market in this week’s commentary...

Stock Market Standing on the 50 Yard Line

Steve Reitmeister contemplates where the stock market stands now and what happens next in trying to stay on the right side of the market action. One path points to bear and one to new highs for the S&P 500 (SPY). Which will it be?

Bear or Bull Market?

The S&P 500 is on the brink of bear market territory...but that outcome is not a given at this time. Steve Reitmeister shares insights gleaned from his 45 years of investing to shine a light on current conditions along with his top picks...

Read More Stories

More SPDR Select Sector Fund - Utilities (XLU) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All XLU News