Utilities Sector 1Q17: Best and Worst

The Utilities sector ranks seventh out of the ten sectors as detailed in our 1Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Utilities sector ranked eighth. It gets our Dangerous rating, which is based on an aggregation of ratings of nine ETFs and 29 mutual funds in the Utilities sector as of January 19, 2017. See a recap of our 4Q16 Sector Ratings here.

Figure 1 ranks from best to worst the eight Utilities ETFs that meet our liquidity standards and Figure 2 shows the five best and worst rated Utilities mutual funds. Not all Utilities sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 17 to 78). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Utilities sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

Here is our ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings. We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.

Figure 1: ETFs with the Best & Worst Ratings – Top 5

utilities1q17_figure1

Sources: New Constructs, LLC and company filings

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

PowerShares DWA Utilities Momentum Portfolio (PUI) is excluded from Figure 1 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5

utilities1q17_figure2

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Guggenheim S&P 500 Equal Weight Utilities ETF (RYU) is the top-rated Utilities ETF and Wells Fargo Utility & Telecommunications Fund (EVUCX) is the top-rated Utilities mutual fund. Both earn a Attractive rating.

PowerShares S&P SmallCap Utilities Portfolio (PSCU) is the worst rated Utilities ETF and Fidelity Advisor Utilities Fund (FAUFX) is the worst rated Utilities mutual fund. PSCU earns our Dangerous rating and FAUFX earns our Very Dangerous rating.

73 stocks of the 3000+ we cover are classified as Utilities stocks, but due to style drift, Utilities ETFs and mutual funds hold 78 stocks.

The Danger Within

Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.

PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND

Figures 3 and 4 show the rating landscape of all Utilities ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst ETFs

utilities1q17_figure3

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds

utilities1q17_figure4

Sources: New Constructs, LLC and company filings

This article originally published here on January 23, 2017.

Disclosure: David Trainer, Kyle Guske and Kyle Martone receive no compensation to write about any specific stock, sector or theme.

Click here to download a PDF of this report.

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