Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect utilities in America to grow over time as our population grows and with it, our demand for power, the iShares Dow Jones US Utilities ETF (NYS: IDU) 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 iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.47%.
This ETF has performed rather well over the long run, beating the S&P 500 over the past five and 10 years, on average. 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.
With a very low turnover rate of 8%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Spectra Energy (NYS: SE) , up 24%, holds much promise as a player in natural gas. It was spun off from Duke Energy (NYS: DUK) in 2007. NiSource (NYS: NI) , up 32%, isn't as big as some of its peers, but it managed to beat earnings estimates in its quarterly results last week.
Other companies didn't add quite as much to the ETF's returns last year but could have an effect in the years to come. Duke Energy, up 18% over the past year, aims to merge with Progress Energy (NYS: PGN) , up 23%. In an effort to boost profitability, Duke is also shedding its Ohio power plants, which feature falling customer counts and falling margins. Consolidation appears to be in the air, with PPL (NYS: PPL) , up 17%, buying $5.7 billion of European power properties.
Southern (NYS: SO) , up 18%, has been a dividend powerhouse, like many utilities. It's bristling at proposed new standards from the EPA, explaining that they will cause big price increases and job losses.
The big picture
Demand for energy isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
At the time thisarticle was published Longtime Fool contributorSelena Maranjianholds no position in any company mentioned. Check out herholdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Southern and Spectra Energy. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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