Fast Start to 2014 for This Utilities ETF
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.
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.