Key Themes for Utility Investors

Note that these ETFs own many of the same stocks in similar proportions. These top 18 holdings also account for 81.4 percent of Utilities Select Sector SPDR’s total assets, 67.2 percent of iShares US Utilities’ portfolio and 65.3 of Vanguard Utilities.

Not only is the performance of these ETFs tied to their 18 largest holdings, but also significant trading activity in these funds can influence the bid and ask prices on these underlying stocks.

Although institutional investors exert a great influence on these stocks’ daily volume than sector-focused ETFs, these funds are true block traders; greater volatility in these ETFs translates into temporary updrafts and downdrafts in these 18 utilities’ share prices.

Instead of regarding these momentum-driven price fluctuations as a nuisance, savvy investors should take advantage of these occasional downdrafts to pick up my favorites below my buy targets. Patience is the key to this strategy.

For owners of individual stocks heavily represented in these funds, it’s vital to distinguish price momentum caused by ETF action from reactions to actual business developments.