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The 3 Best Utilities ETFs (1 From Vanguard) for 2023

Last Updated: July 11, 2022 10 Comments – 2 min. read

Utilities are an underutilized diversifier, dividend income source, and defensive equities sector. Here we’ll review the best Utilities ETFs for 2023.

Disclosure:  Some of the links on this page are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. Read more here.

In a hurry? Here’s the list:

  1. XLU – Utilities Select Sector SPDR Fund
  2. VPU – Vanguard Utilities ETF
  3. FUTY – Fidelity MSCI Utilities Index ETF

Contents

  • Video
  • Introduction – Why Utilities?
  • The 3 Best Utilities ETFs
    • XLU – Utilities Select Sector SPDR Fund
    • VPU – Vanguard Utilities ETF
    • FUTY – Fidelity MSCI Utilities Index ETF
  • Where to Buy These Utilities ETFs

Video

Prefer video? Watch it here:

Introduction – Why Utilities?

Utilities refer to basic, regulated public services like water, natural gas, electricity, and sewage. Investing in the utilities sector provides long-term investors with stable income from dividends, as well as lower volatility and low correlation relative to the total stock market. Utilities also tend to perform well during market downturns, as demand for utilities is relatively constant.

Consequently, overweighting utilities in one’s portfolio may offer a diversification benefit, reducing overall portfolio volatility and risk. For the period 1999 through July 2020, adding a 10% tilt to Utilities did precisely that compared to the total stock market, resulting in higher general and risk-adjusted returns with lower volatility and smaller drawdowns.

utilities

Utilities may even be preferable to REITs and Commodities. Utility operating costs are passed to the ratepayer, and using utilities over REITs lets you avoid the idiosyncratic risks associated with real estate markets. Moreover, of all sectors, Utilities are the least explained by the known equity risk factors that explain the differences in returns between diversified portfolios. I explored this concept further here.

Let’s look at the best Utilities ETFs.

The 3 Best Utilities ETFs

Below are the 3 best Utilities ETFs:

XLU – Utilities Select Sector SPDR Fund

The Utilities Select Sector SPDR Fund (XLU) is the most popular Utilities ETF on the market, with over $11 billion in assets. The fund seeks to track the Utilities Select Sector Index, providing broad exposure to utilities across the U.S. This ETF was established in 1998 and has an expense ratio of 0.13%.

VPU – Vanguard Utilities ETF

Next in popularity is the Vanguard Utilities ETF (VPU), with over $5 billion in assets. The fund seeks to track the MSCI US Investable Market Utilities 25/50 Index, and is comparable to XLU above. This ETF has over 60 holdings and an expense ratio of 0.10%.

FUTY – Fidelity MSCI Utilities Index ETF

Another low-fee option for utilities is the Fidelity MSCI Utilities Index ETF (FUTY), established in 2013. This ETF is the cheapest on the list, with an expense ratio of 0.08%. The fund seeks to track the MSCI USA IMI Utilities Index.

Where to Buy These Utilities ETFs

All these Utilities ETFs should be available at any major broker. My choice is M1 Finance. The broker has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, and a sleek, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.

Canadians can find the above ETFs on Questrade or Interactive Brokers. Investors outside North America can use eToro or possibly Interactive Brokers.


Disclosures:  I am long VPU.

Interested in more Lazy Portfolios? See the full list here.

Disclaimer:  While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.

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About John Williamson

Analytical and entrepreneurial-minded data nerd, usability enthusiast, Boglehead, and Oxford comma advocate. I lead the Paid Search marketing efforts at Gild Group. I'm not a big fan of social media, but you can find me on LinkedIn and Reddit.

Reader Interactions

Comments

  1. Jon says

    October 10, 2022 at 12:11 am

    Would it be ok to make the generalization to say VNQ goes in tax-deferred and VPU goes in taxable (*IF* someone wanted to do so?) That’s kind of the vibe I’m getting from this article.

    I may want to follow a strategy that recommends REITs at a small amount, but because it is a taxable account, I’m thinking to substitute VPU instead.

    Reply
    • John Williamson says

      October 10, 2022 at 11:18 am

      Hey Jon, yes, all else equal, VPU would be considered more tax efficient than VNQ.

      Reply
  2. Jake says

    January 28, 2022 at 3:27 am

    Interesting article and topic. Thanks for sharing, John.

    I fully understand the benefits of investing into utility EFTs. You’ve explained them well in this article.

    On the opposite side, when I looked into the Top 10 holdings of e.g. VPU I saw that all of these companies are already in the S&P 500 index.

    So let’s say we are already invested in S&P 500, for instance via VOO, wouldn’t it them just be more of the same also investing in VPU as we are already exposed to the exact same companies vis VOO?

    Will enjoy to read your view on this.

    Keep up the good work.

    Reply
    • John Williamson says

      January 28, 2022 at 12:43 pm

      Thanks, Jake! You’re right, these would already be inside a broad market index fund. But a fund like VPU only comprises about 3% of VOO by weight, so for someone like me who wants to use Utilities as a hopeful diversifier, I’d have to consciously overweight them further by buying a dedicated utilities ETF. Does that make sense?

      Reply
  3. Ross says

    December 9, 2021 at 4:36 pm

    John, suppose Bob is a US-based investor who wants to add a slice of utilities (say, VPU) to his portfolio for its diversifying properties but needs to make some room for it. Should he carve space for VPU out of his domestic equity allocation, or out of his total equity allocation? I don’t suppose that it would matter too much, but I feel like there’s probably a more-or-less right answer — I just don’t know what it is! Thanks as always!

    Reply
    • John Williamson says

      December 10, 2021 at 12:36 am

      Thanks for the comment, Ross! I’d say total.

      Reply
  4. LUCAS POMPERMAYER PASSOS says

    August 21, 2021 at 6:15 pm

    Do You recommend any global utilities ETF?

    Thanks!

    Reply
    • John Williamson says

      August 22, 2021 at 12:09 pm

      Probably not. Too expensive.

      Reply
      • Robert Brumbaugh says

        September 1, 2022 at 10:42 pm

        John, what is the highest percentage of utilities that you could use in your portfolio?

        Thanks

        Reply
        • John Williamson says

          September 3, 2022 at 1:07 am

          Theoretically, as much as you’d like.

          Reply

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