Five Utility ETFs for Growing Energy Demands

Includes: FAN, IDU, TAN, VPU, XLU
by: Tom Lydon

No matter what you do in today’s world, you are using the goods and services provided by your local utility provider. As the country grows, greater demand for energy will likely provide a great opportunity for growth in utility ETFs, too.

Powered by coal, natural gas, nuclear energy and hydroelectric generators, the utilities sector is made up of electric power generation, transmission and distribution industries, according to the Bureau of Labor Statistics. Renewable sources is expanding, but electricity generated by renewables only makes up a small proportion.

Services provided by utilities are heavily regulated, with most areas operating under monopolies that are watched over by public utilities commissions, who set predetermined rates.

The most pressing problems facing the utility sector include the aging infrastructure and the anticipated retirement of baby boomers, which will greatly reduce the workforce for domestic utilities. Although, the increased size and efficiency of new power plants may lead to an overall decline in future employment, as stated by the Bureau of Labor Statistics.

This map tells the story of the utility ETF opportunity:

Source: NPR.

The orange lines represent proposed electric lines needed for the rise in energy consumption.

We may need more energy as we grow, but we may start to use energy more efficiently, too, comments Richard Harris for NPR. New structures and offices are being built with new energy-saving techniques that would greatly reduce power usage. However, innovations in efficient energy usage won’t stop the fundamentals of energy consumption, i.e. a growing economy and population growth.

According to the ETF Analyzer, here are some of the largest ETFs tracking the utilities sector today (as well as a few ETFs that could benefit from the growth of renewables). All told, there are nearly 20 ways to play the utility sector including these five:

  • Utilities Select Sector SPDR (NYSEARCA:XLU)
  • Vanguard Utilities (NYSEARCA:VPU)
  • iShares Dow Jones U.S. Utilities Sector Index Fund (NYSEARCA:IDU)
  • Claymore/MAC Global Solar Energy (NYSEARCA:TAN)
  • First Trust Global Wind Energy (NYSEARCA:FAN)

Max Chen contributed to this article.

Disclosure: None