Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some utility stocks to your portfolio, the PowerShares Dynamic Utilities ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF’s expense ratio — its annual fee — is 0.63%. It recently yielded 2.6%. The fund is fairly small, too, so if you’re thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed well, surpassing the world market over the past three and five years. As with most investments, of course, we can’t expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
The fund’s turnover rate of 71% reflects that it’s based on an index that selects holdings based on price and earnings momentum, among other things (such as management and value), and that it’s rebalanced quarterly.
We can expect the utilities industry to thrive over time, as our planet’s growing population and developing economies consume more energy — and telecommunications services, which are sometimes included in utility indexes such as this one. Utilities tend to be less volatile than much of the market, too, as energy is a rather defensive business. No matter what the economy is doing, we want our electricity — and we’re likely to keep paying our cable bill as long as we can.
More than a handful of utility companies had strong performances over the past year. Oddly named 8×8, Inc. (NASDAQ:EGHT), specializing in high-margin voice-over-IP software, surged 48% as some wonder whether it will be acquired. The stock took a hit last month, when the company’s third-quarter earnings report wasn’t quite as stellar as hoped, though it does have many strong and growing numbers, such as revenue per customer.