Last week, I introduced you to my favorite ETFs in the Consumer Staples sector. Today, I focus on the second weakest sector, Utilities. Why? To identify sectors that are outperforming and underperforming the market for portfolio considerations.
What are utilities? Utilities are private, for-profit companies providing staples for daily living and are heavily regulated. They provide water, sewage services, electricity, dams, infrastructure, and natural gas, providing basic amenities. It is a large sector with a market capitalization of over $1.5 trillion (March 2021).
Investors typically view utilities as long-term holdings and use them to generate a steady income for their portfolios. Some utility funds also make good dividend reinvestment candidates.
My favorite utility funds ranked by size are as follows:
XLU-Utilities Select Sector SPDR ETF tracks companies in the Utilities Select Sector Index, including electric utilities, water utilities; multi-utilities; independent power, renewable electricity producers, and gas utilities companies. XLU is the largest fund in this group, with assets of 12.4 B and an average trading volume of 12.3 M.
IGF-iShares Global Infrastructure ETF tracks the S&P Global Infrastructure Index, stocks of large infrastructure companies in developed or emerging markets that must be domiciled in developed markets, or whose stocks are listed on developed market exchanges around the world. IGF has assets of 2.94 B and an average trading volume of 350 K.
PAVE-Global X U.S. Infrastructure Development ETF tracks companies in the U.S. Infrastructure Development Index, companies involved in construction and engineering; production of infrastructure raw materials, composites, and products; industrial transportation; and producers/distributors of heavy construction equipment. PAVE has assets of 2.32 B and an average trading volume of 1.9 M.
NFRA-Flex Shares STOXX Global Broad Infrastructure Index ETF tracks the STOXX Global Broad Infrastructure Index, companies that offer broad exposure to publicly traded and emerging-market infrastructure companies, including U.S. companies. NFRA has assets of 2.28 B and an average trading volume of 135 K.
IFRA-iShares U.S. Infrastructure ETF tracks companies in the NYSE FactSet U.S. Infrastructure Index, companies with infrastructure exposure benefiting from a potential increase in domestic infrastructure activities. IFRA has assets of 347 M and an average daily trading volume of 229 K.
I charted the performance of each fund beginning March 24, 2020, running to real-time. The results and returns by rank are as follows:
PAVE-Global X U.S. Infrastructure Development ETF (blue line) up an impressive 161%%, IFRA-iShares U.S. Infrastructure ETF (red line) up 114%, IGF-iShares Global Infrastructure ETF (green line) up 64%, NFRA-Flex Shares STOXX Global Broad Infrastructure Index ETF (pink line) up 56%. The group laggard, XLU-Utilities Select Sector SPDR ETF (black line), up 51%. The market, $SPX (green area), is up 87%.
Here are the key points:
1. Bigger is not always better. The largest fund, XLU, was the lowest performer in this group, underperforming the market ($SPX) by 35%.
2. The top-performing fund PAVE outperformed the market ($SPX) by 74%.
3. Two funds outperformed the returns of the market ($SPX).
4. These results represent a specific period. Different dates will result in different outcomes.
5. Past performance does not dictate future returns.
Here is what you should think about:
First, if you own utility funds, how are they performing compared to these funds?
Second, if you are not tracking your utility funds performance, then why?
The market continues to trade at all-time highs. No one knows when the next large-scale selling begins. The current sector action is not signaling that a market top is in.
I will be watching to see if profit-taking hits the top-performing sectors and more money flow more into these utility and consumer staple funds. When this happens, the institutions will short the previous high-flyers and long the sectors moving up.
What's next? My favorite healthcare funds.
Plan your work, work your plan, and share your harvest!
David O. England is an investor/trader, financial analyst/educator/lecturer and Associate Professor Emeritus of Finance. This column is for educational purposes only and not intended as financial advice. Past performance does not dictate future returns. Questions? Send to firstname.lastname@example.org.