Investment management firm Vanguard offers exchange-traded funds (ETFs) that mirror the performance of all 11 stock market sectors. These ETFs feature low expense ratios -- providing an inexpensive way to invest in a diversified portfolio of sector-specific stocks.
In 2025, just three stock market sectors outperformed the S&P 500 (^GSPC +0.83%) -- communications, tech, and industrials. Many of the worst-performing sectors last year are leading the pack in 2026 -- with energy, materials, consumer staples, industrials, and utilities all up 10% or more, and real estate and healthcare also outperforming the S&P 500.
Here's why the Vanguard Utilities ETF (VPU +0.26%) is my top sector fund to buy in March.
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A new catalyst for long-term growth
Utilities are traditionally viewed as a defensive sector because demand holds up even during recessions. But in the long run, the sector tends to underperform the S&P 500 because it doesn't benefit as much from economic growth as sectors like tech, communications, industrials, or financials.
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Regulated electric utilities have steady cash flows, as many pay stable and growing dividends.
But the U.S. is currently experiencing a boom in electricity demand, largely driven by artificial intelligence workloads that are fueling data center expansions. The U.S. Energy Information Administration projects a 1% increase in electricity use in 2026 and 3% in 2027. It doesn't sound like much, but once increases from 2024 and 2025 are factored in, the forecast would mark the strongest four-year growth period since 2000.
NYSEMKT: VPU
Key Data Points
The ETF wrapper is ideally suited for the utility sector
There's a limit to how fast regulated electric utilities can benefit from increased power demand, given that they work with federal agencies that resist rate hikes and manage permitting. But in exchange, these utilities benefit from having virtual regional monopolies.
The regional structure of the U.S. utility sector makes investing in individual utility stocks a bit trickier than other sectors. For example, ExxonMobil and Chevron are similar energy companies in that they operate throughout the oil and gas value chain. It doesn't work that way in the utility sector.
For example, Duke Energy's regulated electricity business primarily serves customers in the Carolinas, Florida, Ohio, Kentucky, Indiana, and Tennessee. Whereas Southern Company owns Southern Power, which is a wholesale energy provider, as well as electric utilities in the Southeastern United States that provide a variety of services, from power generation to transmission and distribution.
Buying the entire utility sector through an ETF helps reduce dependence on a specific region or power generation portfolio. Whereas in other sectors, investors may have a clearer preference for, say, Nvidia over Apple in the tech sector or Amazon over Tesla in the consumer discretionary sector.
A solid buy for income and value investors
With a mere 0.09% expense ratio and exposure to 67 stocks, the Vanguard Utilities ETF is a simple way to build a diversified utility stock portfolio without racking up high fees. Even after big gains in 2024 and 2025, the utility sector remains a reasonable value, with the Vanguard Utilities ETF sporting a 22.9 price-to-earnings (P/E) ratio and a 2.7% yield compared to a 27.7 P/E and 1.1% yield for the Vanguard S&P 500 ETF.
Some investors may want to pair a sector ETF with individual stock holdings to amplify exposure to their highest-conviction names. But for investors looking to dip their toes into utility stocks or simply house a basket of stocks under a single ticker, the Vanguard Utilities ETF stands out as a top fund to buy now.
