Make Money in Utilities the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the utilities industry to thrive due to our growing population and the non-discretionary nature of energy usage, the First Trust Utilities AlphaDEX ETF (NYSE: FXU  ) ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in several dozen of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The utility ETF's expense ratio -- its annual fee -- is 0.70%. That's not as high as many active funds, but it's fairly high for an ETF.

This ETF has performed reasonably, but it's also very young, with just three full years on the books. Its three-year average return topped the S&P 500 handily, but as with most investments, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver. With a turnover rate of 60%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do, though its turnover isn't exactly low.

What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Natural gas specialist Southern Union (NYSE: SUG  ) , for example, has roughly doubled in value, due largely to a bidding war for it between Williams (NYSE: WMB  )  and Energy Transfer Equity (NYSE: ETE  ) .

Other companies didn't add quite as much to the ETF's returns last year, but they could have an effect in the years to come. CenturyLink (NYSE: CTL  ) gained about 14% over the past 12 months, with investors bullish on its purchase of Savvis (Nasdaq: SVVS  ) , which can help it expand into the cloud computing arena. Telecom stocks aren't often considered utilities these days, but this ETF lumps them in with electric and gas utility stocks.

Exelon (NYSE: EXC  ) gained just 12%, and its future is tied to the future of nuclear energy. So far, the recent disaster in Japan doesn't seem to be shutting the industry down just yet.

The big picture
Demand for utilities isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across the industry -- and make investing in and profiting from the sector that much easier.

ETFs can help you find the way to better investing results. To find some great ETF investing ideas, take a look at The Motley Fool's special free report, "3 ETFs Set to Soar During the Recovery."