Utility ETFs: A safe haven in choppy markets?

Rebecca Hampson

a person standing in a field

Markets have remained remarkably calm given the Brexit hysteria in recent weeks and the feeling of uncertainty.

There is much talk about how any kind of Brexit deal will have some kind of impact on the economy and markets, but how this will play out remains to be seen. You could do worse than having an equity-focused safe haven in your portfolio, which is where utility stocks step in.

In fact, the FTSE 100 and Euro STOXX 50 – despite moving a bit – have remained remarkably calm all things considered. But whether they will continue to do so is very much unclear.

There are market murmurs of a recession on the horizon, combine that with the Brexit furore and the outlook is murky at best.

So, if things all do go downhill then where will you feel this the least, or even get some uplift?

The utilities sector is worth a thought. It’s done remarkably well in general over the past year and the fact that utilities are needed in any market state helps support the theory that they’re worth holding during times of a downward trend.

Despite the really good returns from the ETFs we have listed below – ranging from 18-27% YTD. Seeking Alpha ranks the utilities sector tenth (out of 11) in the third quarter of this year based on an aggregation of ratings of the 70 stocks in the utilities sector. This is US focused of course, but gives some idea of where utilities sit in their mind.

This may not be a bad thing though.

Equities have continued going up this year – the index below shows the FTSE 100 in black, S&P 500 in orange and EuroSTOXX 50 in purple – and utilities are not the most exciting of stocks. They are considered more of a safe haven.

chart, line chart

Source: Bloomberg

After all, utilities provide a stable investment during times of economic downturns or low market interest rates.

James McManus, head of ETF research at Nutmeg, said: "The utilities sector is often viewed by some market participants as a bond proxy – due to its defensive nature and the reliability of income streams in the sector.

European utilities therefore may be of interest to investors for two reasons at present: "Firstly, the increasing prevalence of negative yields in both the government and corporate bond markets in Europe means the utility sector may attract investors hungry for yield.

"The iShares Stoxx Europe 600 utilities ETF currently has a distribution yield of 3.98%, exceeding that of even the leading EUR denominated high yield bond ETF. Secondly, as the industrial complex continues to struggle in Europe, those investors worried about the potential for an imminent recession may seek shelter in a defensive sector that has previously demonstrated a lower beta to that of the overall market."

In the US, the utilities sector is amongst the largest recipients of flows from a sector perspective over the past year, trailing only the communications sector.

“Flows year to date sector wise are dominated by so called bond proxy sectors – real estate, communications, utilities and consumer staples,” says McManus.

There are a number of utilities ETFs on offer across Europe, some of which - listed on the London Stock Exchange - are below.

One of the good things about them is that they are relatively cheap.

For example, Invesco’s Utilities S&P US Select Sector UCITS ETF (XLUP) has a TER of 0.14% and YTD has returned 26.29%. In fact, its 5-year return is above 18%. It also weathered the stock nosedive at the end of last year relatively well. See the graph below that shows its performance over the past year.

chart, line chart

Source: Bloomberg

ETFs also allow investors to access utilities from around the world. So, even if you don’t want UK utilities you can still get access to US, global or European stocks.

Adrian Lowcock, head of personal investing at Willis Owen, said in a statement: "While the UK continued to be shunned by investors due to Brexit uncertainty, the shift out of equities in July was broader, and didn’t just impact the UK.

"Investor confidence had been deteriorating over the past few months as concerns over the strength of global growth weighed on the outlook, and with the US-China trade war intensifying, whilst tensions with Iran added to concerns.

"Then there is the economic data which showed a number of economies, including the UK, are now shrinking and at risk of falling into recession."

The table below shows some of the utility ETFs on offer with YTD return and TER.



Expense Ratio0.3%


Expense Ratio0.3%


(Borsa Italiana)






ETFYTD RTNTERINDEXAmundi ETF MSCI Europe Utilities UCITS ETF24.19%0.25%MSCI Europe UtilitiesXtrackers MSCI World Utilities UCITS ETF18.3%Current Mgmt Fee0.15%MSCI World Utilities Net Total Return IndexXtrackers Stoxx Europe 600 Utilities Swap UCITS ETF22.69%Current Mgmt Fee0.15%STOXX® 600 Utilities IndexLyxor MSCI World Utilities TR UCITS ETF22.47%0.30%MSCI World Utilities TRN indexInvesco Utilities S&P US Select Sector UCITS ETF26.29%0.14%S&P Select Sector Capped 20% (Utilities) Net Total Return IndexInvesco Utilities S&P US Select Sector UCITS ETF21.65%0.14%S&P Select Sector Capped 20% (Utilities) Net Total Return IndexSPDR MSCI Europe Utilities UCITS ETF22.08%0.30%MSCI Europe Utilities IndexSPDR S&P U.S. Utilities Select Sector UCITS ETF21.82%0.15%The fund's objective is to track the performance of large sized U.S. utilities companies in the S&P 500 IndexSPDR MSCI World Utilities UCITS ETF18.30%0.30%The fund's objective is to track the performance of companies in the utilities sector, across developed markets globally

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