The economy could be heading for trouble as companies continue to lay off staff and cut back on spending. One way investors can try to insulate themselves from adverse economic conditions is to invest in businesses that provide essential products and services. A good example are utility companies. While consumers may cut back on discretionary spending and even trade-down grocery brands, it's a safe bet that they'll want to keep the lights on.
An exchange-traded fund (ETF) that can give investors exposure to utility companies is the Utilities Select Sector SPDR Fund (NYSE Arca: XLU). The ETF has a miniscule expense ratio of 0.10% and it pays a yield of 3%, which is better than the S&P 500 average of 1.7%. It also has a beta value of 0.56, indicating that it isn't very volatile.
As the fund's name suggests, it's full of utility companies. Electric utility businesses account for around two-thirds of the portfolio, and multi-utility companies make up just under 29%. Some of the stocks in the fund are among the best known utility stocks out there, including NextEra Energy (NYSE:NEE), Southern Company (NYSE:SO), and Duke Energy (NYSE:DUK). Those three stocks account for a combined 31% of the ETF's total weight.
Year to date, the fund has generated underwhelming returns, as it has declined 2%. Over the past five years, however, it has risen 37% and when including its dividend, the ETF's total returns are at around 60%.
Overall, the ETF provides investors with a relatively low-risk way to collect some great dividend income. And now, at a time when the economy may not be in great shape, it can be a way to keep your risk down as well.
