Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some utilities stocks to your portfolio but don't have the time or expertise to hand-pick a few, the Guggenheim S&P 500 Equal Weight Utilities ETF (NYSEMKT: RYU ) 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. The ETF also gives each component equal influence, instead of weighting them by market cap or some other measure.
ETFs often sport lower expense ratios than their mutual fund cousins. The Guggenheim ETF's expense ratio -- its annual fee -- is a relatively low 0.50%. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed well, beating the world market over the past three years and nearly doubling its return over the past five. 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.
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.
More than a handful of utility companies had solid performances over the past year. NiSource (NYSE: NI ) , a holding company focused on gas and electricity, surged 26%. It yields 3.2%. The company's recent earnings report featured earnings up 6% and increases in capital investments (to record levels), in part to modernize infrastructure.
PP&L (NYSE: PPL ) gained 17%, and yields 4.6%. The Pennsylvania-based electric company recently reported strong earnings gains (up nearly 50%) and upped its forecast. Its three regulated business segments are dong particularly well. The company gets significant revenue and income from operations in the U.K. and bulls like that geopgraphic diversification.
Frontier Communications (NASDAQ: FTR ) advanced 12% and yields 8.9%. The company is weighed down with considerable debt, and is shifting its business focus, favoring business customers now. Some worry about a dividend cut, but the company has said no cut is imminent. The stock is heavily shorted, as bears don't like its considerable landline business in this era of growing smartphone prominence. Its credit rating also took a hit in recent months. Frontier reports its earnings tomorrow, and bulls will be happy to see continued strong free cash flow.
Other companies didn't do quite as well over the last year but could see their fortunes change in the coming years. Windstream (NASDAQ: WIN ) shed 4% and yields more than 11%! It has been known as a rural telecom company, but has been shifting its focus more toward broadband service and business customers. Its investments in new revenue streams may ultimately pay off, but it remains significantly a landline company. It has been generating solid free cash flow. It reports its earnings on Thursday, and some wonder whether a dividend cut is around the corner.
The big picture
Demand for utilities isn't going away anytime soon. 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.