ETFs
ETFs to make the most of the AI-powered utilities sector
Utilities are one of the hottest stocks this year, driven by the artificial intelligence (AI) frenzy, and are outperforming the broader market index, just behind technology and telecom stocks (see : all utility ETFs here).
AI bolsters electricity demand as data centers require tons of energy for computing and cooling power. As a result, growing demand for data centers could boost industry profits. Investors looking to make the most of the next stage of the AI industrial revolution might want to consider utility ETFs. These include Utilities Select SPDR sector XLU, Vanguard Utilities ETF VPU, iShares US Utilities ETF UDI, Fidelity MSCI Utilities Index ETF FUTY and Invesco S&P 500 Equal Weight Utilities ETF RSPU. These funds have a Zacks ETF Rank #3 (Hold).
A simple ChatGPT task uses 10 times more energy than a normal Google search. So data centers with a capacity of 30 megawatts increase their capacity to handle 300 megawatts of power. This made the traditional defensive sector of the market the most attractive. The Energy Information Administration says data centers are “one of the most energy-intensive types of buildings, consuming 10 to 50 times more energy per floor space than a typical commercial office building.”
The International Energy Agency (IEA) predicts that total data center electricity consumption could reach more than 1,000 terawatt hours (TWh) in 2026, “roughly equivalent to the electricity consumption of Japan “. In the United States alone, the Boston Consulting Group estimates that AI-powered data centers will consume up to 7.5% of electricity generation by 2030, triple what they were in 2022. A Wells Fargo analyst recently reported that U.S. electricity demand is expected. This growth could reach 20% by 2030, and AI data centers alone are expected to add 323 TWh to electricity demand (one TWh powers 70,000 homes for a year).
Additionally, increased adoption of electric vehicles will also boost electricity demand from companies in the utility sector. Adding to this strength is the volatility and uncertainty triggered by the timing of Fed rate cuts and the slowing economy. As a low beta sector, utilities are relatively protected from significant fluctuations (ups and downs) in the stock market and are therefore considered a defensive investment or safe haven in the event of an economic or political crisis (read: Sector ETFs will benefit from the rise in bets on rate cuts). ).
ETF to exploit
Utilities Select sector SPDR (XLU)
With assets under management of $14.3 billion, Utilities Select Sector SPDR seeks to provide exposure to companies in the electric utility, water utility, multi-utility producer, independent power and renewable electricity and gas utility sectors. XLU tracks the Utilities Select Sector Index, holding 31 stocks in its basket. Electric utilities take the top spot among sectors at 66%, followed closely by multiple utilities (26%).
Utilities Select Sector SPDR charges 9 basis points in annual fees and sees heavy volume of 13.4 million shares on average. XLU is up 12.6% so far this year (read: 5 ETFs to Buy for June).
Vanguard Utilities ETF (VPU)
The Vanguard Utilities ETF tracks the MSCI US Investable Market Utilities 25/50 Index, holding 65 stocks in its basket, with no one accounting for more than 12.4% of the shares. More than half of the portfolio is allocated to electric utilities, closely followed by multi-utilities (25.3%).
Vanguard Utilities ETF charges 10 basis points in annual fees and sees good volume of around 179,000 shares on average. Its assets under management stand at $5.7 billion and are up 12.6% so far this year.
iShares US Utilities ETF (IDU)
The iShares US Utilities ETF tracks the Russell 1000 Utilities RIC 22.5/45 Capped Index. It holds a basket of 46 stocks with a slight tilt towards the top company at 12.5%, while the others represent less than 7%. Again, electric utilities dominate the portfolio at 57.3%, followed by multiple utilities (22%).
The iShares US Utilities ETF has amassed $1.3 billion in its asset base while trading a healthy volume of 90,000 shares per day on average. The fund charges 40 basis points in annual fees and has gained 13.3% so far this year.
Fidelity MSCI Utilities Index ETF (FUTY)
The Fidelity MSCI Utilities Index ETF provides exposure to 70 utility stocks with $1.2 billion in assets under management. This is done by tracking the MSCI USA IMI Utilities Index. Here too, power utilities and multi-utilities are the two largest sectors with 62.4% and 24.1% share respectively.
The Fidelity MSCI Utilities Index ETF has an expense ratio of 0.08%, while average daily volume is good at 149,000 shares per day. It’s gained 12.6% so far this year (read: Harnessing the Power of Utilities and Small Caps with These ETFs).
Invesco S&P 500 Equal Weight Utilities ETF (RSPU)
The Invesco S&P 500 Equal Weight Utilities ETF provides exposure to 32 equally weighted companies in the utilities and telecommunications services sectors of the S&P 500 Index and tracks the S&P 500 Equal Weight Utilities Plus Index. Power utilities and multi-utilities represent 55.5% and 31.2% of assets respectively, while independent energy and renewable electricity round out the next place with 7.1% exposure.
The Invesco S&P 500 Equal Weight Utilities ETF charges 40 basis points in annual fees. Its assets under management stand at $277.8 million and have gained 10% so far this year.
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SPDR Select Utility Sector ETF (XLU): ETF Research Reports
Vanguard Utilities ETF (VPU): ETF Research Reports
Fidelity MSCI Utilities Index ETF (FUTY): ETF Research Reports
iShares US Utilities ETF (IDU): ETF Research Reports
Invesco S&P 500 Equal Weight Utilities ETF (RSPU): ETF Research Reports