Utilities Select Sector SPDR Fund (XLU) offers exposure to the U.S. utility sector. The fund seeks to track the Utilities Select Sector Index performance, employing a replication strategy.

The index includes securities of companies from the electric utilities, water utilities, multi-utilities, independent power and renewable electricity producers, and gas utilities industries.

The utility sector provides a strong hedge amid a recessionary backdrop. Utilities offer fewer surprises as they face a stable demand. The sector is known for its relatively low volatility and tends to be regulated, which minimizes the risk of new competition. XLU has a five-year monthly beta of 0.53.

The ETF has gained 13% over the past year, 8.6% year-to-date, and 17.4% over the past six months, compared to the broader SPDR S&P 500 ETF Trust (SPY) 2.6%, 9.9%, and 1.5% decline over the same periods, respectively. The ETF closed the last trading session at $77.74.

Here are the factors that could affect XLU’s performance in the near term:

Fund Stats

As of August 18, XLU has $17.69 billion in assets under management and a NAV of $77.73. Its gross expense ratio of 0.10% is significantly lower than the category average of 0.43%. The fund has a net flow of $2.21 billion over the past six months and $539.47 million over the past three months.

Top Holdings

As of August 18, the fund’s top holdings include NextEra Energy, Inc. (NEE) with a 16.20% weighting, Duke Energy Corporation (DUK) at 7.92%, The Southern Company (SO) at 7.74% weighting, Dominion Energy, Inc. (D) at 6.35% and American Electric Power Company, Inc. (AEP) at 4.90%.

Attractive Dividend

XLU’s annual dividend of $1.98 yields 2.96% on prevailing prices. Its dividend payouts have increased at a 3.1% CAGR over the past three years and a 3.6% CAGR over the past five years. The fund has a record of 11 years of consecutive dividend growth.

POWR Ratings Reflect Promising Prospects

XLU’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

XLU has a Trade and Buy & Hold grade of A. In the 13-stock Utility ETFs group, it is ranked #1. The group is rated A.

Click here to see the additional POWR Ratings for XLU (Peer).

View all the top ETFs in the Utility ETFs industry here.

Bottom Line

The utility sector usually holds up well amid economic downturns. With the U.S. GDP falling for two straight quarters, utilities might offer a solid cushion to one’s portfolio. Moreover, XLU has considerably outperformed the broader market this year. Hence, I think XLU might be a solid buy to generate stable returns.

How Does Utilities Select Sector SPDR Fund (XLU) Stack Up Against its Peers?

While XLU has an overall POWR Rating of A, one might consider looking at its industry peers, Vanguard Utilities Index Fund (VPU) and Fidelity MSCI Utilities Index ETF (FUTY), which also have an overall A (Strong Buy) rating.

XLU shares were trading at $77.90 per share on Friday afternoon, up $0.16 (+0.21%). Year-to-date, XLU has gained 10.43%, versus a -10.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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