Main Thesis
The purpose of this article is to evaluate the Vanguard Utilities ETF (NYSEARCA:VPU) as an investment option at its current market price. As a working professional who adds money to the market every month, I am having difficulty finding value right now. Historically, when that is the case, I would increase my fixed income and broad market positions. While I have indeed been buying investment grade corporate and municipal bonds, I have built those positions up to the point where I need to put some cash to work in equities. However, I am reluctant to put cash in my broad funds, such as the Vanguard S&P 500 ETF (VOO), because the S&P 500 looks increasingly overvalued. As a result, I am adding to the sectors that have the most relative value, and Utilities fits the bill. The sector has been hit hard by COVID-19 like the rest of the market, but it is more resilient long term than its cyclical counterparts. Earnings estimates for the sector have not been cut significantly, and with production numbers increasing in the U.S., commercial demand for power is likely to move higher in the coming months. With the expectation that volatility will remain elevated in the second half of the year, I see Utilities as a smart play.
Background
First, a little about VPU. The fund's stated objective is "to track the performance of a benchmark index that measures the investment return of stocks in the utilities sector" and is managed by Vanguard. The fund trades at $128.82/share and yields 3.34% annually. I held a bullish rating on VPU during my last review, when I felt the fund would move higher as the economy began to get over the COVID-19 pandemic. Unfortunately, VPU has lagged since then, with economic growth stalling as new COVID-19 cases rose. The market has moved higher anyway, driven higher
