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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some global utilities stocks to your portfolio but don't have the time or expertise to hand-pick a few, the iShares S&P Global Utilities Index Fund ETF (NYSEMKT: JXI ) 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 lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on global utilities stocks, sports a relatively low expense ratio -- an annual fee -- of 0.48%. It yields about 4%, too.
This ETF has underperformed the world market over the past three and five years. The future counts more than the past, though, and as with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver. They might also just use this global utilities stocks ETF as a source from which to select some individual stocks.
Why global utilities stocks?
While some industries see their fortunes rise and fall along with overall economic conditions, such as automakers or large-appliance makers, other industries, such as utilities, are more "defensive." Their offerings remain in demand no matter what the economy is doing. Better still, many global utilities stocks pay substantial dividends.
Some global utilities stocks performed reasonably over the past year. British-American utility PP&L (NYSE: PPL ) advanced 9% and yields 4.9%. The company has been reining in its coal-fired energy production in light of environmental regulations, replacing much of its lost capacity via natural gas and solar energy. (It's selling a bunch of hydropower assets, though.) The company has significant operations in the U.K., offering valuable geographic diversification. Its recent foray into smart grids has boosted reliability.
Other companies didn't do quite as well over the last year, but could see their fortunes change in the coming years. Consolidated Edison (NYSE: ED ) advanced just 2%, and yields 4.5%. It, too, has been moving into solar energy, recently partnering with Sempra Energy for that. Its recent rate-increase request in New York is being countered by a rate-cut suggestion. Meanwhile, as with its peers, its stock is seen as threatened by possible interest rate hikes in the near future. Its earnings have also been hit by taxes.
Exelon (NYSE: EXC ) , the nation's leader in nuclear energy (which some see as doomed), shed 11%. It slashed its dividend by 41% earlier in 2013, but it's still yielding 4.2%. The company has been hurt by the relatively high cost of nuclear energy in an environment of very low gas prices. Its second quarter featured revenue that topped expectations, but earnings that fell a bit shy of them. Increased attention to climate change and renewed interest in energy independence for America can boost the fortunes of nuclear energy providers, but they're still vulnerable to uranium price moves. It, too, has been investing in other energy-generation businesses, such as solar and wind power, and bulls are hopeful about its rate-increase plans and smart-grid focus.
FirstEnergy (NYSE: FE ) also shed 11%, and yields 6%. It, too, has been retiring coal-powered plants, and shedding some hydropower assets, as well, while investing in transmissions and improved grids. Interested investors are advised to keep an eye on the company's spending and on its success in requesting rate increases.
The big picture
Consider adding global utilities stocks to your portfolio. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.