The shaky market drives investors underground – down into the uncertain recesses of financial safety. Investors crave growth, reliability, low risk, and income, but in times of economic strife they settle for capital preservation, low returns, and future profits. Among today’s safer havens are gold and food commodities, consumer staples, healthcare, energy, U.S. Treasury notes, inverse and ultra ETFs, foreign currencies, and entertainment (drinking, smoking, and playing in the gambling casinos).
Surprisingly, public utilities offer value, profit, and reliability when the market is at its worse. Roger Conrad’s Utility Forecaster of January, 2008 (www.utilityforecaster.com) presents an extensive menu of high-yield utilities. He says, in their favor: “Utility stocks haven’t gone straight to the moon in five years. But they’ve come pretty close: The index of 20 electric utilities traded on the Philadelphia Stock Exchange tripled from late-2002 lows and are 50 percent above their 2000 peak.” Many, in fact, are trading at their 52-week highs.
HOW CAN YOU PROFIT WITH ETFs?
Utilities may not be the most glamorous investments, but they do have their charms, and tend to hang tough in volatile markets. Fortunately, there are at least fourteen utility ETFs from which to choose (www.etfguide.com).
Many of the utility ETFs are new to the market but should do well over the long-term. Certainly, they reflect the most prominent megatrends in history. The key ingredients in the recipe for profitable utility ETFs are that:
1. The holdings are well-known utility stocks that show long-term price stability and have a history of increasing yields.
2. Like utility stocks, utility ETFs show reduced volatility in tremulous markets. They rarely show knee-jerk reactions to market corrections.
3. Utility ETFs with diverse holdings spread the risk associated with financial allocations. Holdings have assets among electricity, natural gas, coal, solar and wind generation, biofuels, nuclear energy, and even water.
4. Utility ETFs can be selected to reflect foreign allocations and specified geopolitical regions.
5. Utilities are useful investment vehicles because the world cannot do without them. Over time the demand for utilities and what they can do increases. Utilities typically have good dividend payouts, thus compensating for temporary decreases in prices.
6. Last, there are links between increasing interest in clean energy and growth of utility funds. Current growth of clean energy ETFs (solar, wind, biofuels, water, nuclear, etc.) are likely to stabilize utility use and increase their efficiency. Those companies that can’t make adjustments will become Darwinian history. Technical advances that favor clean energy will also favor the transition of traditional utility companies into key players in alternative energy sources, energy production and transmission, and in waste management. It is clearly a win-win synergy.
Below is a list of the major utility ETFs. Check the fundamentals before considering investing in these.
SELECTED UTILITY ETFs AS OF JANUARY, 2008
|
ETF Name
|
Ticker
|
Primary Concentration
|
Yield
%
|
|
PowerShares Dynamic Utilities
|
PUI
|
Domestic: traditional electricity
|
2.19
|
|
First Trust NASDAQ Clean Edge
|
QCLN
|
Domestic: solar
|
N/A
|
|
iShares S&P Global Utilities
|
JXI
|
Global: electricity, gas, water
|
0.78
|
|
Vanguard Utilities ETF
|
VPU
|
Domestic: electricity
|
2.44
|
|
Utilities Select Sector SPDR ETF
|
XLU
|
Domestic: electricity, gas, water
|
2.57
|
|
PowerShares Wilder-Hill Clean E.
|
PBW
|
Dom. solar, green energy
|
N/A
|
|
PowerShares FTSE RAFE Utilities
|
PRFU
|
Domestic: electricity
|
3.02
|
|
Utilities HOLDRs
|
UTH
|
Domestic: electricity
|
N/A
|
|
Wisdom Tree International Utilities
|
DBU
|
Global: electricity, gas, water
|
0.79
|
|
Market Vectors Nuclear Energy ETF
|
NLR
|
Global: intern. investments
|
N/A
|
|
PowerShares Water Resources
|
PHO
|
Domestic: water
|
0.40
|
|
PowerShares Global Clean Energy
|
PBD
|
Global: solar, wind
|
N/A
|
|
Rydex S&P Equal Weight Utilities
|
RYU
|
Domestic: electricity
|
2.89
|
|
iShares Dow Jones US Utilities ETF
|
IDU
|
Domestic: electricity, gas, water
|
N/A
|
Several of these have demonstrated great returns:
>> IDU 1yr = 28.25% >> RYU YTD = 10.00% >> PHO YTD = 16.73% >> DBU YTD = 23.28%
>> UTH YTD = 9.91% >> PRFU 1 yr = 11.53% >> PBW 1 yr = 58.50% >> XLU 1 yr = 19.86%
>> VPU YTD 10.14% >> JXI 1 yr = 22.46%.
Additional knowledge about these ETFs can help the investor construct a profitable portfolio, even when the bear is at the door. Ultimately, it is self-confidence that pushes the investor beyond knowledge. Charles V (1500-1558) had it right when before a great battle he said: “Name me an Emperor who was ever struck by a cannonball.” |
