VPU ETF Review: Is Vanguard Utilities ETF Worth Buying?

Vanguard Utilities ETF holds 65+ utility stocks at Vanguard's low 0.10% expense ratio, offering broader and more diversified utility sector exposure than XLU with additional small and mid-cap utility holdings that capture regional grid operators and smaller power companies.

Last updated: 2026-02-02 · Data: Yahoo Finance, fund prospectuses, SEC filings

What Is VPU?

The Vanguard Utilities ETF tracks the MSCI US Investable Market Utilities 25/50 Index, giving investors exposure to the entire spectrum of American utility companies. Managed by Vanguard with their characteristic low-cost approach, VPU holds everything from massive regulated monopolies to independent power producers reshaping the grid. The fund launched in January 2004 and carries a rock-bottom 0.09% expense ratio on $9.8 billion in assets.

Current Snapshot

Why It Matters for Real Asset Investors

VPU represents the ultimate tollbooth investment thesis—companies that control essential infrastructure with regulated monopoly characteristics. When grid reliability becomes a national security issue, these are the companies collecting predictable cash flows from captive customers who can't switch providers.

The utilities sector serves as portfolio ballast during periods of economic uncertainty because electricity demand remains remarkably stable regardless of economic conditions. People cut restaurant visits before they cut power to their homes. This defensive characteristic makes VPU particularly valuable when paired with more cyclical real asset plays like energy infrastructure or commodity producers.

The current environment favors utilities for three key reasons. First, the AI data center boom is driving unprecedented electricity demand growth after decades of flat consumption. Second, the energy transition requires massive capital investment in transmission and generation, creating a multi-decade growth runway. Third, rising geopolitical tensions highlight the strategic value of domestic energy infrastructure, potentially leading to policy support for grid modernization.

Top Holdings

NextEra Energy (NEE) - 11.3%: The largest utility by market cap, combining regulated Florida operations with the world's largest renewable development platform through NextEra Energy Resources. NEE has built a competitive moat in wind and solar development that extends far beyond its home market.

Constellation Energy (CEG) - 7.5%: The largest nuclear operator in the US, spun out of Exelon in 2022. CEG benefits from nuclear power's renaissance as the only carbon-free baseload generation source capable of powering data centers 24/7.

Southern Company (SO) - 6.3%: A southeastern utility giant with significant nuclear exposure through Plant Vogtle, the first new nuclear plant built in the US in decades. SO's regulated model provides predictable cash flows from growing Sun Belt markets.

Duke Energy (DUK) - 6.2%: Operates across the Carolinas, Florida, Indiana, and Ohio with a massive transmission network. DUK is investing heavily in grid modernization and has significant exposure to data center demand in Virginia.

American Electric Power (AEP) - 4.2%: One of the largest transmission companies in America, operating across 11 states. AEP's regulated transmission assets are essential for integrating renewable energy and connecting growing electricity demand with supply.

How It Fits the Portfolio

VPU works best as a core holding rather than a tactical trade, typically representing 5-10% of a real asset allocation. The fund's defensive characteristics make it valuable portfolio insurance, while its infrastructure exposure captures the energy transition theme without the volatility of pure-play renewable stocks.

The key is understanding that VPU moves differently than commodity-based real assets. While energy stocks rally with rising oil prices, utilities often struggle because higher fuel costs pressure margins before rate adjustments kick in. This negative correlation can actually improve portfolio diversification when combined with energy infrastructure MLPs or commodity producers.

Consider adding to VPU during periods of market stress when defensive characteristics are valued, or when the yield curve steepens and interest rate headwinds ease. The fund's long-duration characteristics make it sensitive to rate changes, but the current AI-driven demand surge could overwhelm traditional interest rate sensitivity.

Regime Signals

VPU outperforms during three key environments. First, falling interest rates boost the present value of utilities' steady cash flows, making them more attractive relative to bonds. Second, periods of economic uncertainty drive investors toward defensive sectors with predictable earnings. Third, policy environments favoring clean energy and grid modernization create regulatory tailwinds.

The fund typically struggles when interest rates spike rapidly or when energy commodity prices crater, reducing the relative attractiveness of steady utility dividends compared to high-growth alternatives. However, the current AI boom may be creating a new regime where electricity scarcity pricing gives utilities unprecedented pricing power.

Watch the 10-year Treasury yield and data center construction announcements as key regime indicators. When the 10-year drops below 4%, utilities historically outperform. When major tech companies announce new data center investments, the implied electricity demand growth supports higher utility valuations regardless of broader market conditions.

Related Research

• Alabama Power Grid Risk Assessment
• NextEra Energy (NEE) Tollbooth Analysis
• IDU: iShares U.S. Utilities ETF
• XLU: Utilities Select Sector SPDR
• IFRA: iShares U.S. Infrastructure ETF

Frequently Asked Questions

How does VPU compare to XLU?

VPU holds more stocks than XLU (65+ versus ~30), including smaller utilities that are excluded from the S&P 500. Both are market-cap weighted with nearly identical expense ratios (VPU 0.10%, XLU 0.09%). The top holdings and performance are very similar. VPU's advantage is slightly broader diversification, while XLU offers better liquidity and deeper options markets. For most investors, the choice comes down to preference between Vanguard and SPDR platforms.

What is the dividend yield of VPU?

VPU yields approximately 2.5-3.5%, comparable to XLU. The small and mid-cap utilities in VPU that are not in XLU tend to have similar or slightly higher yields, modestly enhancing the fund's income profile. Distributions are paid quarterly. The stable, regulated nature of utility earnings makes VPU's income stream among the most predictable of any equity ETF.

What is the expense ratio of VPU?

VPU charges 0.10% annually, true to Vanguard's low-cost investing philosophy. This is essentially identical to XLU's 0.09%. At these rock-bottom fee levels, the expense ratio difference is negligible — a $100,000 investment would differ by just $10 per year in fees. The choice between VPU and XLU should be based on factors other than cost.

Is VPU a good long-term utility investment?

VPU is an excellent choice for long-term utility sector exposure. Vanguard's broad index approach, low fees, and inclusion of smaller utilities provide comprehensive sector coverage. The utility sector's transformation from a slow-growth income play to a grid-modernization growth story enhances VPU's long-term return potential while maintaining the defensive characteristics that make utilities a portfolio staple.

For our complete allocation framework across real assets, infrastructure, and income strategies, see The Blackout Fortune Playbook.

Last updated: February 1, 2026 | Data: Yahoo Finance, Vanguard filings