Utility stocks have long been a source of refuge for investors looking for protection from volatility and market declines.
The sector’s early performance is a great snapshot of what investors have come to expect. As we close in on the end of 2026’s first quarter, tariff worries, war with Iran, and other factors have pressured the broader market into modest losses. The utility sector? As I write this, it’s up nearly 11%.
It makes sense. You’d be hard-pressed to find businesses more stable than regulated electric, gas, and water utilities. You can thank the basic human needs they provide (you’d go without virtually all other things before you’d turn off your water, heat, or lights) and the fact that many utilities operate almost like monopolies with little to no competition. Sure, revenue growth usually isn’t much to crow about, but they’re dependable, plus they tend to turn over a sizable portion of their profits back to investors in the form of dividends.
Better still? Over the past few years, artificial intelligence (AI) has turned into a growth driver for the sector, with electric and natural gas utilities tasked with feeding the technology’s endless hunger for energy.
While you can buy these companies individually, today, I want to talk about the utility sector’s best exchange-traded funds (ETFs). All of these funds own stocks from the same sector, but their approaches are different enough that their appeal may vary from one investor to the next.
Editor’s Note: The tabular data presented in this article is up-to-date as of March 17, 2026.
Disclaimer: This article does not constitute individualized investment advice. Individual securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
Why Do Investors Buy Utility Stocks?
Utilities are often lumped in with other “defensive” sectors, most commonly consumer staples and health care stocks. That’s because all three sectors provide basic goods and/or services that people simply can’t go without. When the economy goes in the toilet, people might cut back their spending in a lot of areas, but they’ll do everything they can to keep from cutting back on necessities like prescriptions, power, and toilet paper.
Edward Jones Investments breaks down the buy case in a research paper:
“Utilities tend to pay a relatively high percentage of their earnings to shareholders in the form of dividends. In many cases, utility dividends grow slowly over time. This growing stream of income can help investors reduce the impact of inflation,” the firm writes. “Additionally, utilities display defensive characteristics since most customers view their services as essential.
“For that reason, we believe that traditional regulated utilities are among the companies least affected by changes in the health of the economy.”
The Investment Case for Utilities Is Changing
Utility stocks still largely provide those defensive properties, but over the past few years, evolutions to the space have given the sector more growth spark than usual.
For one, the sector has been transitioning from fossil fuels to clean energy, which for years gave utility companies the added bonuses of additional political and regulatory support. Of course, this strength is quickly vanishing under the new presidential administration. There’s also the emergence of unregulated utilities, which aren’t bound to the regulators (and even tight geographical markets in some cases), but instead are able to sell to individuals, businesses, and even other utility companies on the open market. This is a “growthier” business, but also a less stable one.
But perhaps the most noteworthy aspect of utilities right now is their connection to the rise of AI.
“U.S. data centers consumed 183 terawatt-hours (TWh) of electricity in 2024, according to IEA estimates,” says the Pew Research Center. “That works out to more than 4% of the country’s total electricity consumption last year—and is roughly equivalent to the annual electricity demand of the entire nation of Pakistan. By 2030, this figure is projected to grow by 133% to 426 TWh.”
That growing demand of energy has bene propelling utilities toward rates of growth they haven’t seen in some time.
To be clear: Utilities’ newfound tether to AI is a double-edged sword. If the reality of artificial intelligence doesn’t live up to expectations—if the technology falls flat on growth estimates, and thus the necessary infrastructure around it isn’t as robust—this fresh tailwind could start blowing back against the sector.
The Best Utility ETFs
If you’re investing in utility stocks solely for this growth potential, it might behoove you to invest in one or two stocks that are uniquely positioned to take advantage. Many utility companies found in your average ETF might have marginal to no upside from AI’s expansion.
But if you’re interested in the sector’s defensive properties, whether in part or in whole, utility ETFs are likely the way to go. Utility ETFs are well-diversified across the sector, providing the exposure you want without the risk of a single utility-company failure blowing up your whole portfolio.
And if you’re looking for a little of Column A and a little of Column B, utility ETFs can still give you what you’re looking for. “Data centers are improving the outlook for the sector, both for unregulated power producers and regulated utilities,” says Aniket Ullal, SVP and Head, ETF Research & Analytics, at independent research firm CFRA.
The following are three of the best utility ETFs you can find.
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1. Utilities Select Sector SPDR Fund
- Inception: Dec. 19, 1998
- Assets under management: $25.2 billion
- Dividend yield: 2.4%
- Expense ratio: 0.08%, or 80¢ per year on every $1,000 invested
When I asked Ullal about ETFs that could thrive in 2026, he pointed to the Utilities Select Sector SPDR Fund (XLU). It’s the oldest, biggest, and—thanks to a 2025 fee reduction—cheapest utility ETF on the market.
The XLU is as straightforward as it gets. This index fund holds all of the utility stocks in the S&P 500. That’s it. Like the S&P 500 itself, XLU is market cap-weighted, so the larger the company, the greater the percentage of assets invested in that company. So, for instance, $195 billion NextEra Energy (NEE) is the top holding at more than 13% of assets, while $10 billion AES Corp. (AES) is the smallest holding at just 0.7%.
To prevent hyper-concentration in one or a few stocks, XLP’s index also has a couple of “caps” that ensure after each quarterly rebalancing: a.) No single stock can make up more than 25% of the index, and b.) the total weight of companies with individual weights greater than 4.8% can’t exceed 50% of the total index weight.
Related: The 10 Best-Rated Dividend Aristocrats Right Now
The XLU is hardly perfect. By virtue of excluding any utility companies that trade outside of the S&P 500, XLU has one of the smallest holdings lists among indexed utility ETFs, at just 31 companies right now. That, combined with the market cap weighting system, leads to sizable concentrations. Just four stocks—NextEra, Southern Co. (SO), Duke Energy (DUK), and Constellation Energy (CEG)—account for a little more than a third of the fund’s assets. This construction also ensures you’ll lack exposure to potentially higher-growth small-cap utility companies.
But high concentrations in larger companies generally result in more stable performance. Also, this is the utility sector—there’s far less differentiation among these companies, which operate in just a narrow handful of businesses, than there are among the components of most other sectors.
The Utilities Select Sector SPDR Fund has long been one of the best utility ETFs to buy, but for different reasons. XLU started acquiring assets by being the only game in town, and over time was the most attractive player because it was the biggest game in town. However, on Jan. 31, 2025, State Street Investment Management reduced the net expense ratio on its Select Sector funds—so now, XLU is also the cheapest game in town, at an annual expense ratio of just 0.08%.
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2. Invesco S&P 500 Equal Weight Utilities ETF
- Inception: Nov. 1, 2006
- Assets under management: $553.0 million
- Dividend yield: 2.3%
- Expense ratio: 0.40%, or $4.00 per year on every $1,000 invested
Investors have thrown several billion dollars at a number of other utility ETFs that follow indexes that, while built a little differently from XLU, ultimately provide pretty similar exposure and almost identical returns. There’s nothing wrong with them, per se—they’re just slight variants on XLU that cost a hair more.
If you want truly different exposure to the utility space, you might instead want to consider the Invesco S&P 500 Equal Weight Utilities ETF (RSPU), which holds … well, the exact same 31 stocks that XLU does.
What matters is how much of those stocks RSPU owns.
Invesco’s utility ETF tracks the S&P 500 Equal Weight Utilities Plus Index, emphasis on “equal weight.” Unlike XLU and other copycat funds, where bigger stocks have more pull, RSPU gives the same weight to each stock every time the ETF rebalances, which is quarterly.
Related: 7 Low- and Minimum-Volatility ETFs for Peace of Mind
Depending on how each stock performs, their weights might change throughout the quarter. But right now, they’re trading pretty closely together—Edison International (EIX), PG&E Corp. (PCG), and Consolidated Edison (ED) each account for more than 3% of assets … but so do all the other top-10 holdings. Regardless of how far apart those weights become, they’ll all be brought back to the exact same weight every three months, and the dance will begin anew.
Equal weighting typically reduces concentration in a handful of stocks. To wit: While top-10 holdings usually account for 60% or more of the assets of many market cap-weighted utility index funds, they only account for about a third of RSPU’s assets.
But more importantly, equal weighting also tends to reduce emphasis on the larger companies in an index while giving smaller companies more say in performance. For instance: Even though XLU and RSPU hold the same exact companies, the former’s average weighted market cap (which accounts for the assets allocated to each stock) is $60 billion, while the latter’s is just $38 billion.
This higher reliance on small caps has led to a slightly lower yield than other utility index funds, but much better performance. On a total-return basis (price plus dividends), RSPU has beaten XLU and the category average over every meaningful time frame—and by well more than enough to justify its relatively elevated fees.
Related: 10 Best ETFs to Beat Back a Bear Market
3. Virtus Reaves Utilities ETF
- Inception: Sept. 23, 2015
- Assets under management: $1.4 billion
- Dividend yield: 1.4%
- Expense ratio: 0.49%, or $4.90 per year on every $1,000 invested
The vast majority of the market’s utility ETFs are index-based. However, if you prefer to put skilled human managers on the case, you can do so via the Virtus Reaves Utilities ETF (UTES).
And even if you favor index strategies, you still might want to consider Virtus’ actively managed product.
Managers John Bartlett, Joseph Rhame III, and Rodney Rebello have built a portfolio with many of the same names you’ll see in an index ETF—Constellation, NextEra, and Vistra (VST) among them. But there are significant outliers, such as Talen Energy (TLN), which despite being a smaller ($15 billion) large cap is the top holding right now accounts for 10% of assets.
Related: Best Vanguard Funds to Hold in an HSA
Another big difference is how tight the portfolio is: UTES holds a mere 18 stocks at the moment.
There’s no weighting system here. The portfolio managers allocate assets at their own discretion, and Virtus’ trio is more than comfortable with high concentrations. CEG, VST, and TLN, for instance, collectively account for 34% of assets, and more than 70% of the fund’s assets are wrapped up in the top 10 holdings. Its average weighted market cap of $40 billion is much closer to RSPU’s than XLU’s.
That has translated into meager income—UTES’s yield is just a hair above the S&P 500 currently—but stellar returns nonetheless. Its three-, five-, and 10-year trailing returns are downright spectacular: They not only top XLU and RSPU, but as I write this, they’re the best in the category.
Most of that outperformance has come more recently as the fund’s concentrated bets have really paid off. Just understand that this upside potential also comes with higher risk than your average index fund should any of UTES’ largest holdings fall out of favor.
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Related: 10 Best Monthly Dividend Stocks for Frequent, Regular Income
The vast majority of American dividend stocks pay regular, reliable payouts—and they do so at a more frequent clip (quarterly) than dividend stocks in most other countries (typically every six months or year).
Still, if you’ve ever thought to yourself, “it’d sure be nice to collect these dividends more often,” you don’t have to look far. While they’re not terribly common, American exchanges boast dozens of monthly dividend stocks.
Related: 7 Best Vanguard Dividend Funds You Can Buy in 2026
What’s better than a smart, sound dividend income strategy? How about a smart, sound dividend income strategy with very little money coming out of your pocket?
If that sounds good to you, you need look no farther than low-cost pioneer Vanguard, which offers up a number of payout-oriented products. Find out what you need to know in our list of seven top-notch Vanguard dividend funds.
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