Investing in passive-income stocks appeal to many investors who are nervous about the downward-trending market. In the first four months of the year, broader indices as well many darlings of the pandemic have been volatile and are mostly in negative territory.
Therefore, today, we’ll introduce two exchange-traded funds (ETFs) that focus mainly on utility and infrastructure stocks. In the flight to safety, these shares could offer some calm for many retail investors.
In recent weeks, we introduced several similar sectoral ETFs, including:
- Utilities Select Sector SPDR® Fund (NYSE:XLU)—up 1.5% year-to-date (YTD);
- Fidelity® MSCI Utilities Index ETF (NYSE:FUTY)—up 0.9% YTD;
- iShares US Infrastructure ETF (NYSE:IFRA)—down 2.9% YTD;
We also looked at several multi-asset funds that invest in utilities in addition to other sectors:
- Alpha Architect Gdsdn Dynmc Mlt-Asst ETF (NYSE:GDMA)—up 3.5% YTD;
- First Trust Multi-Asset Diversified Income Index Fund (NASDAQ:MDIV)—down 1.5% YTD;
- Invesco Real Assets ESG ETF (NYSE:IVRA)—up 2.4% YTD.
Thus, the following two ETFs build upon our earlier discussion of the sector.
1. Vanguard Utilities Index Fund ETF Shares
- Current Price: $159.44
- 52-week range: $138.25 - $167.48
- Dividend yield: 2.68%
- Expense ratio: 0.10% per year
Our first fund, the Vanguard Utilities Index Fund ETF Shares (NYSE:VPU), invests in utilities that mainly distribute electricity, gas or water. They could also be independent power producers. The fund was first listed in January 2004.
VPU, which tracks MSCI US Investable Market Index, currently has 64 holdings. Electric utilities have the largest slice with almost 60%, followed by multi, gas and water utilities.
The top 10 stocks in the portfolio account for over $8.1 billion in net assets. NextEra Energy (NYSE:NEE), Duke Energy (NYSE:DUK), Southern (NYSE:SO), Dominion Energy (NYSE:D) and Sempra Energy (NYSE:SRE) are among those leading names.
The ETF is up almost 2% YTD and 11.1% in the past 12 months. Trailing P/E and P/B ratios stand at 24.6x and 2.4x.
Although the sector is not fully immune from troubles in Wall Street, we still believe a fund like VDU should be in long-term portfolios. Most utilities are able to pass increasing costs to customers and thus typically have stable earnings. They are also likely to be at the center of decarbonization-driven initiatives.
2. SPDR S&P Global Infrastructure ETF
- Current Price: $57.59
- 52-week range: $51.21 - $59.67
- Dividend Yield: 2.23%
- Expense ratio: 0.40% per year
Next up is the SPDR® S&P Global Infrastructure ETF (NYSE:GII), which invests in large-cap infrastructure-related global companies. The fund started trading in January 2007, and net assets stand at $509.74 million.
GII, which tracks S&P Global Infrastructure Index, holds 76 stocks. With regards to sub-sectors industrials and utilities each comprise around 40% of the portfolio, followed by energy.
Almost 40% of the portfolio is held in the top 10 stocks. Over a third of the names come from the US. Next are companies from Canada, Australia, Italy, Spain, France, China, Mexico, Germany and others.
Leading holdings on the roster include the Australian toll-road operator Transurban (ASX:TCL), energy infrastructure group Enbridge (NYSE:ENB), Italian toll road and airport management company Atlantia (OTC:ATASY), Spanish airport operator Aena (BME:AENA), and NextEra Energy.
The fund has returned 6.2% so far in 2022, and 8.5% over the past year. GII also hit a multi-year high in recent days. Trailing P/E and P/B ratios stand at 19.85x and 2.09x.
PWC suggests:
"The infrastructure sector sits at a collision point of global disruptions, including shifts in capital availability, evolving social and environmental priorities, and rapid urbanisation… Successful infrastructure delivery demands close alignment and collaboration between a wide range of participants”
We like many of these high-quality global infrastructure names, which also include utilities, in GII. They are likely to create shareholder value for many quarters to come.