Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect global utilities to thrive over time as the world's population grows, economies develop, and energy demands increase, the iShares S&P Global Utilities Index ETF (NYSE: 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.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The utilities ETF's expense ratio -- its annual fee -- is a relatively low 0.48%, and it recently offered a hefty dividend yield of 4.6%.
This ETF doesn't have the most sparkling performance record, underperforming the S&P 500 over the past five years. But the future counts more than the past, and 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 very low turnover rate of 9%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several global utilities companies had solid performances over the past year, despite economic malaise in much of the world. Duke Energy (NYSE: DUK), for example, gained 17%. In the process of merging with Progress Energy and becoming America's largest electrical utility, it's offering investors a solid yield near 4.6%. In recent news, the company is proposing a rate cut for its biggest business customers in North Carolina. While that might be a smart move, keeping the companies from looking for better rates elsewhere, it could also put pressure on Duke's bottom line. And if Duke ends up doing this in other regions, it could have a bigger effect.
PPL (NYSE: PPL), up 2%, has been posting big revenue and earnings gains, and it sports a dividend yield near 5.3% as well. This past mild winter hurt the company's results, but its management was upbeat in a recent conference call, noting improved customer service (via shorter power outages), promising acquisitions, and expected annual rate increases around 8% over the next few years.
Other companies didn't do as well last year but could see their fortunes change in the coming years. Exelon (NYSE: EXC), down 4%, is a major nuclear power. Though the disaster in Japan may have tarnished the appeal of nuclear power, nuclear power doesn't seem to be going away. And once natural gas prices climb, Exelon will become more attractive.
Public Service Enterprise Group (NYSE: PEG), meanwhile, shed 2% over the past year, recently posting strong earnings growth and rising profit margins. Like its peers, the company was hurt some by the mild winter -- and some expect that this summer will be cooler than usual, keeping energy demand a bit lower than usual. PSE&G has been building capacity and improving efficiency at its plants, 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.
These aren't the only intriguing energy investments. If you think high oil prices are here for a while, consider making money on them. Check out our special free report, "3 Stocks for $100 Oil," and meet some compelling candidates for your portfolio.
