Fund Watch


Fast Start to 2014 for This Utilities ETF

Miriam Cross

This exchange-traded fund adds some telecom stocks to more-traditional fare.



Who says utility funds are dull? After putting up mediocre numbers in 2013 (a return of 14.3%), Guggenheim S&P 500 Equal Weight Utilities ETF (symbol RYU) has been anything but boring this year. The exchange-traded fund gained nearly 10% in the first quarter.

See Also: Our Guide to ETFs

Unlike many utility funds that invest just in electricity, gas and water companies, the Guggenheim ETF injects a bit of excitement by placing about 15% of its assets in telecommunications stocks. Guggenheim’s William Belden says the sectors are more alike than dissimilar: “The volatility, dividend yield and price-earnings ratio associated with telecom services are more closely aligned with the utility sector than with tech.”

The ETF is built differently than most index-tracking funds. Traditional indexes weight stocks by market capitalization—the bigger the market cap, the larger a stock’s position in the benchmark. The Guggenheim ETF’s index holds its 35 stocks in roughly equal proportions. Because stock prices and market values fluc­tuate, Guggenheim rebalances the portfolio every three months to maintain the equal weighting. The thinking behind equal-weighted indexes is that over time they will outpace traditional indexes because they will have more exposure to smaller, presumably faster-growing firms. Over the past five years, the Guggenheim ETF has outpaced the typical utility ETF by an average of 3.4 percentage points per year.



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