This Sector SPDR is one of the most popular options for investors looking to gain exposure to the U.S. utilities sector, a corner of the domestic stock market known for relatively low volatility and relatively high distribution yields. As such, a fund like XLU might be useful for establishing low risk equity exposure or for enhancing the current returns generated by the equity side of a portfolio. Like most sector-specific ETFs, XLU is probably most appealing to those implementing a sector rotation strategy or looking to establish a tactical tilt towards this low beta sector of the U.S. market. Those building a long-term, buy-and-hold portfolio will likely achieve utilities exposure through broad-based equity funds (though the allocation to this sector can be relatively small).
While the exposure offered by XLU is generally similar to other products in the Utilities Equities ETFdb Category, this fund distinguishes itself in a few ways. First, XLU is among the cheapest ways to bet on utilities (FUI and VPU are also very cost efficient). Second, XLU offers unparalleled liquidity within this category, making it a popular choice among those looking to establish or liquidate a position quickly. One potential drawback is the relatively shallow portfolio; VPU has more component holdings, while RYU offers an equal-weighted approach that avoids big concentrations in any one name.