Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the utility industry to thrive over time as our global demand for energy keeps growing, the Vanguard Utilities ETF (NYSE: VPU) 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 basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is a very low 0.19%. (Vanguard is known for low fees.) The ETF was recently yielding 3.7%, as well.
This ETF has a mixed performance record, roughly tying the S&P 500 over the past five years, but underperforming it over the past three. It trounced it in 2011, though. 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.
With an ultra low turnover rate of 6%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several utility companies had strong performances over the past year. Duke Energy (NYSE: DUK), for example, gained 21%. One of the nation's largest electric utilities, it's well positioned if the EPA caps emissions from new plants, as it has proposed doing -- as it's building cleaner gas-powered plants. Duke recently yielded 4.7%.
Other companies didn't do as well last year, but could see their fortunes change in the coming years. Yielding 5.3% recently and up 5% over the past year, PPL (NYSE: PPL), offers a measure of stability, with a majority of its profits coming from regulated businesses. The company is also growing, recently buying a gas-fired power plant in Pennsylvania.
Gaining 3%, Public Service Enterprise Group (NYSE: PEG) recently yielded 4.6%. Its profit margins trounce those of its peers, and it's investing heavily in upgrading its infrastructure. The company has been building clean plants and investing in solar energy as well.
Nuclear power giant Exelon (NYSE: EXC), down 3%, recently offered a dividend yield of nearly 4%. The stock's performance has been somewhat depressed by a diminished enthusiasm for nuclear power in the wake of Japan's disaster. But that enthusiasm has hardly been snuffed, and Exelon is involved in gas-powered energy generation, as well.
The big picture
Demand for energy 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.
If you think that steep oil prices aren't going away anytime soon, either, check out our special free report, "3 Stocks for $100 Oil," and meet some compelling contenders for your portfolio.
