XLU ETF Review: Is Utilities Select SPDR Worth Buying?

Utilities Select Sector SPDR is the benchmark U.S. utilities ETF at just 0.09% expense ratio, holding the S&P 500's regulated power companies — a defensive income allocation that has transformed into a growth play as data center power demand and grid modernization drive unprecedented capital investment.

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

What Is XLU?

The Utilities Select Sector SPDR (XLU) tracks the utilities subset of the S&P 500, holding the sector's largest public companies that generate, transmit, and distribute electricity, gas, and water. State Street manages this ETF, which follows the Utilities Select Sector Index and has operated since 1998. At just 0.08% in annual fees with $21.8 billion in assets, XLU offers cheap access to America's essential infrastructure backbone.

Current Snapshot

Why It Matters for Real Asset Investors

Utilities represent the ultimate tollbooth assets in our Energy Macro framework. These companies own the regulated monopolies that deliver power to homes and businesses—infrastructure so essential that customers pay regardless of economic conditions. When grid reliability becomes a national security issue, as we expect through the 2030s, utilities become strategic assets rather than boring income plays.

The sector shines during periods of financial uncertainty because utilities combine three powerful features: regulated earnings that grow with rate base expansion, dividend yields that compete with bonds, and quasi-governmental stability that attracts capital during market stress. Unlike pure infrastructure funds that may hold foreign assets or complex structures, XLU focuses on US-regulated utilities with transparent cash flows and predictable growth.

XLU struggles during aggressive Federal Reserve tightening cycles because utilities carry substantial debt to fund infrastructure investment. Rising rates increase borrowing costs and make utility dividends less attractive relative to risk-free Treasury yields. However, when rate cuts begin—as markets now expect—utilities often outperform as investors reach for yield and infrastructure exposure.

Top Holdings

NextEra Energy (NEE) at 12.7% leads the portfolio as America's largest utility by market cap, operating regulated utilities in Florida while developing renewable generation across the country. Constellation Energy (CEG) at 8.4% owns the nation's largest nuclear fleet, positioning it as a key beneficiary of AI data center power demand and carbon-free mandates.

Southern Company (SO) at 7.3% operates across the Southeast growth corridor with substantial nuclear and natural gas capacity. Duke Energy (DUK) at 6.9% dominates the Carolinas market and continues investing heavily in grid modernization and renewable transition.

American Electric Power (AEP) at 4.7% operates transmission networks across 11 states, benefiting from interstate power trading and grid expansion needs. Sempra (SRE) at 4.4% combines California utility operations with LNG infrastructure, offering energy export exposure alongside domestic regulated returns.

Vistra (VST) at 3.9% operates competitive power generation including nuclear plants, while Dominion Energy (D) at 3.8% serves Virginia and other Mid-Atlantic markets with significant offshore wind development.

How It Fits the Portfolio

XLU serves as defensive ballast within a real assets allocation, providing steady income and downside protection during market volatility. The ETF works best as a 5-15% allocation within the equity portion of portfolios, paired with more cyclical infrastructure plays or commodity exposure that captures upside during economic expansion.

Consider accumulating XLU during periods of rate uncertainty or when the yield curve inverts, as utilities often outperform during the early stages of Fed easing cycles. The sector typically underperforms during the initial phases of economic acceleration when growth stocks dominate, making it a strategic rebalancing source rather than a momentum play.

Regime Signals

XLU thrives in three key macro environments: falling interest rates, low economic growth, and periods of financial market stress. The ETF often peaks during Fed pivot points when investors anticipate rate cuts, making it sensitive to monetary policy expectations rather than just actual rate changes.

Rising inflation initially pressures utilities through higher input costs, but regulated utilities eventually recover through rate increases that often provide real returns above inflation. Dollar strength helps utilities with significant domestic operations, while geopolitical tensions boost defensive sectors as investors seek stability over growth.

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Frequently Asked Questions

What is the dividend yield of XLU?

XLU typically yields 2.5-3.5%, providing reliable income from regulated utility earnings. The yield has compressed in recent years as the sector re-rated higher on data center demand expectations. Utility dividends are among the most predictable in the equity market because they are backed by regulated rate-of-return earnings. XLU distributes dividends quarterly and is a core income holding for defensive portfolios.

What is the expense ratio of XLU?

XLU charges just 0.09% annually — among the cheapest sector ETFs available. This makes it the most cost-efficient way to own the S&P 500's utility companies. For comparison, active utility funds charge 0.50-1.00%, and thematic infrastructure ETFs charge 0.30-0.60%. XLU's low cost is a significant advantage for long-term holders where fee drag compounds over decades.

Is XLU a good defensive investment?

XLU has historically been one of the best defensive equity sectors, outperforming during recessions and market drawdowns due to stable regulated earnings. However, the sector is now also a growth story as data centers, electrification, and grid modernization drive capital investment at rates not seen in decades. This dual defensive-and-growth character makes XLU more attractive — and more expensive — than its historical averages suggest.

How does XLU fit into the Energy Macro framework?

XLU provides the defensive ballast in an Energy Macro portfolio. While commodity positions (gold, oil, uranium) can be volatile, XLU's regulated utility earnings provide stable cash flows and income. The sector's transformation into a grid-modernization growth story adds capital appreciation potential. XLU is the broadest, cheapest way to own the utilities that control America's power infrastructure.

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, State Street filings