Investing in Foreign Utilities via ETFs

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We invest in utility stocks for the dividends and stable growth. While there are many utilities such as FPL Group (FPL), Exelon (EXE) in the US, many others in countries outside of the USA offer higher growth and dividend yields. Finland based Fortum and Verbund of Austria are two such examples.

One way to invest in foreign utilities is by picking up individual stocks. The disadvantage of this method is that only some of these stocks are listed in the US markets. So a better and easier way to gain exposure to foreign utilities is by investing via ETFs, which cover many of the high quality utility stocks that are beyond the reach of US investors – unless one has the ability to invest directly in overseas markets.

The SPDR S&P International Utilities Sector ETF (IPU) and WisdomTree International Utilities Sector Fund (DBU) are two ETFs that invest only in foreign utilities. The iShares S&P Global Utilities Index Fund (JXI) has both US and foreign utilities but has high allocation to overseas utilities.

Foreign Utility ETFs Overview:


1.iShares S&P Global Utilities Index Fund (JXI)

JXI is the largest utility sector ETF with assets of $231M and a dividend yield of 2.43%. The fund has 69 stocks with E.ON AG of Germany as the largest holding in the portfolio. As per the fund fact sheet dated June 30,2008 US stocks accounted for 36% of the portfolio. Germany is second with two (E.ON and RWE) of the largest utilities included. E.ON is the largest utility in Germany generating one-third of the electricity used. The average annual dividend growth in the past five years has been 18.5%. RWE AG is the second largest German utility whose five year average annual dividend growth is 23.42%.

Other top stocks in the portfolio are GDF Suez(France), Iberdrola (Spain), Enel Spa(Italy),National Grid plc(UK). Exelon Corp, FPL Group and Dominion Resources are three US utilities in the top 10 holdings. Year-To-Date JXI is down 11.5%. Utility companies from Chile,Brazil,Portugal,Japan,Finland,etc. are also represented.

2.WisdomTree International Utilities Sector Fund (DBU)

The dividend yield of DBU is higher at 3.59% with the total assets of the fund being $56.0M. Though its expense ratio is slightly higher than JXI, DBU is a truly international utility sector fund since it excludes US stocks and allocates the majority of the assets to European utility stocks (about 82%), which are traditionally great performers in terms of dividend yields and capital appreciation.

DBU has 77 stocks in the portfolio GDF Suez of France accounting for 10.15%, the largest holding. Similar to JXI it has E.ON, RWE, Iberdrola, National Grid, etc. as the top holdings. Utilities from Australia,New Zealand, Austria, Norway,Hong Kong form part of the portfolio.

3.SPDR S&P International Utilities Sector ETF (IPU)

State Street Global Advisors launched this fund in July of this year with total assets of just about $5M.

Like JXI, E.ON AG is the largest holding in the fund. Germany is the top represented country but IPU gives a higher weightage for Japan unlike the other two funds above. The expense ratio is lower than the WisdomTree ETF but the asset base has not grown to the levels of JXI and DBU.

Disclosure: Long FPL,VE

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