There are a gazillion ways to play the energy sector with exchange traded funds, but you’re not just limited to oil, natural gas or solar power. Utilities might be an off-the-beaten path way to invest in the nation’s changing energy picture.
Here are a few reasons utility ETFs may be an appealing portfolio addition:
- Electricity prices are driven primarily by the cost of coal and natural gas, as well as supply and demand, says Kevin Grewal for Minyanville. [Defensive Strategies That Are Useful.]
- Utilities have started to get over their biggest hurdle, government legislation on greenhouse gases, which drives up operational costs. In fact, a group of utility companies have come together and formed the American Businesses for Clean Energy, which is pushing for clean energy initiatives which will make then benefit from new energy policies. [The Top 10 ETFs Investors Are Trading.]
- The Obama administration announced that it will distribute to some utilities, private companies, and municipalities grants in the range of $400,000 to $200 million to build a smart-energy grid. [What Contango Is; What You Can Do About It.]
- Utility ETFs may be an appropriate investment if you’re looking for non-cyclical or defensive investments. Demand for gas, electricity and water utilities tends to be consistent throughout market cycles and therefore leads to consistent dividend yields.
- Vanguard Utilities (VPU)
- iShares Dow Jones U.S. Utilities (IDU)
- iShares S&P Global Utilities (JXI)
- Rydex S&P Equal Weight Utilities (RYU)
Disclaimer: Tom Lydon is a board member of Rydex|SGI.