Investing Assets & Markets Exchange-Traded Funds Best Utilities ETFs for 2022 Learn More About the Best ETFs in This Sector and Which to Buy Now By Kent Thune Kent Thune Twitter Kent Thune has spent more than two decades in the financial services industry and owns Atlantic Capital Investments, an investment advisory firm, in Hilton Head Island, South Carolina. He's written hundreds of articles for a range of outlets, including The Balance, Kiplinger, Marketwatch, and The Motley Fool. learn about our editorial policies Updated on April 26, 2022 Reviewed by Gordon Scott Reviewed by Gordon Scott Gordon Scott has been an active investor and technical analyst of securities, futures, forex, and penny stocks for 20+ years. He is a member of the Investopedia Financial Review Board and the co-author of Investing to Win. Gordon is a Chartered Market Technician (CMT). He is also a member of CMT Association. learn about our financial review board In This Article View All In This Article What Are Utilities ETFs? What Are the Benefits? What To Look for in the Best Funds Best Utilities ETFs for This Year and Beyond The Bottom Line Find out if investing in utilities ETFs is right for you. Photo: Chanin Wardkhian/Getty Images If you want to buy the best utilities ETFs, look for income, growth, diversification, or some combination of those objectives. Utilities stocks tend to pay above-average dividends. They have good long-term returns. They also can outperform the market during times of volatility. That is why exchange-traded funds (ETFs) that invest in utilities can be useful tools. What Are Utilities ETFs? Utilities ETFs passively track a benchmark utilities index that may include electric companies, water utilities, gas companies, and energy traders. Large, publicly traded U.S. utilities include NextEra Energy (NEE), Duke Energy (DUK), Dominion Energy, and Southern Company (SO). Note Utilities ETFs can be used as defensive holdings in a declining market, which investors now face as a result of challenging economic conditions. That is because, even in difficult times, people still need basic utilities services, such as water and electricity. What Are the Benefits? There are three primary benefits of investing in utilities ETFs: Low expenses: Because they are passively managed, the expense ratios for ETFs in general tend to be much lower than those of actively managed mutual funds. That gives investors wanting to invest in stocks in the utilities sector a convenient, low-cost, diversified means of gaining exposure to those stocks. Income from dividends: Utilities stocks often pay higher dividends than stocks in other sectors. That makes utilities ETFs attractive to retail, or consumer, investors, especially retired people who want income from their investments. Diversification: Sector funds are often used as tools to add exposure to a certain area of the market that an investor's portfolio may lack. Utilities stocks are defensive in nature because, as a rule, they do not suffer price declines as severe as aggressive stocks do in a bear market. What To Look for in the Best Funds If you seek income, look at the SEC yield of utilities ETFs before buying. This yield is based on the 30-day period ending on the last day of the previous month. The yield figure reflects the dividends and interest earned during the period, after the deduction of the fund's expenses. Funds must report this number to the Securities and Exchange Commission (SEC). Note To find the best utilities ETFs, most investors are wise to look for a combination of yield and low expenses. While performance is a factor, ETFs are passively managed. Results will closely mirror the benchmark index. This means long-term returns come second to other considerations. Best Utilities ETFs for This Year and Beyond The best utilities ETFs will have a combination of high yield and low expenses. Also, when buying ETFs in general, it's wise to look for funds that have a long history and a large asset base. This provides a good record of the fund's ability to track its index, and the high relative assets under management (AUM) allow for greater liquidity. With these qualities in mind, here are three of the best utilities ETFs to buy this year: Vanguard Utilities ETF (VPU): If you're looking for a solid combination of yield and low expenses, VPU is a great choice. VPU tracks the MSCI US IMI Utilities Index, which consists of about 70 U.S. utilities stocks, such as NextEra Energy and Duke Energy. The current yield (as of December 10, 2021) was 3.0%. The expense ratio is 0.10%, or $10 for every $10,000 invested.Utilities Select Sector SPDR (XLU): With $10 billion under management, XLU is the largest ETF, as measured by assets. The target benchmark for XLU is the Utilities Select Sector Index. It includes many of the same holdings as VPU and other utilities ETFs, but it is a bit more focused at 28 holdings. The 30-day yield (as of December 11, 2021) for XLU was 2.93%. The expense ratio is 0.12%.Fidelity MSCI Utilities Index (FUTY): If low expenses are your priority, you'll like what you see in FUTY. It has an expense ratio of 0.08%, or $8 for every $10,000 invested. Like Vanguard's VPU, FUTY tracks the MSCI US IMI Utilities Index, which comprises 70 U.S. utilities stocks. The 30-day yield for FUTY (as of December 10, 2021) was 2.94%. The Bottom Line Utilities ETFs can be a smart way to add income-producing stocks to a portfolio. The utilities sector is seen as defensive and therefore a good hold in a down market cycle. While also a relatively stable growth investment, it may not be right for you. As with other concentrated funds that focus on a single sector, it's wise not to allocate all of your assets to just one fund. The Balance does not provide tax, investment, or financial services or advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. State Street Global Advisors. "Utilities Select Sector SPDR® Fund." Morningstar. "Highlighting Income: SEC Yield." Vanguard. "Vanguard Utilities ETF." Fidelity. "Snapshot: FUTY."