ETF Talk: Utilities Offer Relative Safety and Income

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

This week’s ETF Talk centers on a sector some may find to be lacking in glamour: utilities. While this sector does not enjoy the potential for rapid growth that other sectors may offer, it does present consistent growth and potential dividend income. People always use utilities, regardless of what the state of the economy may be. To that end, the ETF I am highlighting this week is Guggenheim S&P 500 Equal Weight Utilities (RYU).

This non-diversified fund seeks to replicate, before fees and expenses, the performance of the S&P Equal Weight Utilities Index. It uses a passive management strategy to track the performance of said index.

RYU is up 7.27% year to date and offers a 3.56% annual dividend yield. With projected housing numbers showing a rise, utilities should enjoy a resultant boost. Of course, utilities should continue a slow, steady rise in capital appreciation no matter what happens. RYU, as a utilities-focused ETF, will reflect those gains.

While it is weighted most heavily in the Utilities sector (77.25% of its assets), RYU also has holdings in the Communication Services (20.19%) and Energy (2.56%) sectors. The fund is much more diversified when it comes to individual companies among its holdings: no single holding comprises more than 3% of the total. In fact, RYU’s top ten holdings only make up 26.16% of its total assets. The top five companies held, in order, are: Ameren Corporation Common Stock (2.68%), NiSource Inc Common Stock (2.64%), FirstEnergy Corporation Common (2.63%), Sprint Nextel Corporation Comm (2.62%) and Public Service Enterprise Group (2.61%).

Although the ETF had a slight dip in November, RYU has resumed its steady rise from the depths of the market crash of a few years ago. In fact, the dip means that right now presents a good buying opportunity. While RYU and other Utilities ETFs may not offer the most glamorous profits or instant money, they get the job done.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.

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