XLU: Better Safe Than Sorry

Summary

• XLU provides simple cap-weighted exposure to 29 S&P 500 Utilities stocks. It's the largest Utilities ETF with $13.45 billion in AUM, and the second cheapest with a 0.10% expense ratio.
• Figuring out the direction of utility stocks is a complex task. I'll highlight some factors I consider, including long-term treasury yield forecasts, yield curve analysis, and sentiment analysis.
• XLU's 2.84% dividend yield isn't attractive, but its five-year beta of 0.45 is the lowest out of 800+ U.S. Equity ETFs I track. XLU is primarily an insurance play today.
• Investors might want to pay the 21.20x forward earnings for that insurance, too. The yield curve is at risk of inverting, and recessions normally follow in that scenario.
• XLU is a buy because it's the most effective risk-reducing equity ETF on the market today. Better be safe than sorry.

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Investment Thesis

The Utilities Select Sector SPDR ETF (NYSEARCA:XLU) is the largest Utility ETF on the market today, with $13.45 billion in assets under management and a minimal 0.10% expense ratio. Although XLU has outperformed the SPDR S&P 500 ETF (

Analyst’s Disclosure:I/we have a beneficial long position in the shares of SPY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am long two Canadian utilities: Emera (EMRAF) and Fortis (FTS).