Utility Funds in Lieu of CDs?

[redduck]

I have a good-sized CD coming due in early May and it looks like the interest is going to be silly low for CDs in May. Anyhow, since I hold a bunch of Vanguard Bond funds already, I was thinking that a utility fund might kind of/sort of take the place of a CD or bond fund. Two utility ETFs, XLU and VPU have yields a bit over 4.5%. Any thoughts?

 

[brewer12345]

Yield is not everything. Swapping a cd for an equity fund is a big step up in risk. Is this really what you want?

 

[redduck]

Yield is not everything. Swapping a cd for an equity fund is a big step up in risk. Is this really what you want?

Well, Brew, I actually I don't want to take a big step up in risk. I was thinking that this might be just a little step. Guess not.

 

[clifp]

Well, Brew, I actually I don't want to take a big step up in risk. I was thinking that this might be just a little step. Guess not.

I have no opinion on Utilities as industry. But it seems to me that trading CDs for utility ETF (with low expense ratio .22%) trading near its 5 year low, is in fact a small step in risk not a large one. In fact I may do this same thing when some of my mom's CD's mature.

 

[redduck]

I have no opinion on Utilities as industry. But it seems to me that trading CDs for utility ETF (with low expense ratio .22%) trading near its 5 year low, is in fact a small step in risk not a large one. In fact I may do this same thing when some of my mom's CD's mature.

Sure, Clifp, gamble with someone else's money. How about putting your money where your mouth is?

But, yeah, the utilities are close to a five-year low and I think that their yields as a group have been holding fairly steady. But, then again, I was in DVY (an ETF consisting of good-paying dividend stocks). I thought that this ETF would be farily safe. Unfortunately, these good-yielding stocks were mostly in the financial sector. And, DVY got slaughtered. So, your mom and I need to be very careful (and lucky) here.

 

[brewer12345]

redduck, just another thought, you can still get 4% CDs at Pen Fed.

 

[FinanceDude]

I have no opinion on Utilities as industry. But it seems to me that trading CDs for utility ETF (with low expense ratio .22%) trading near its 5 year low, is in fact a small step in risk not a large one. In fact I may do this same thing when some of my mom's CD's mature.

I always have some utilities in my portfolios. Some of them are beaten down, but in my area the PSC (public service commission) has been giving the utilities whatever increases they want for the past 5 years or so.

The risk IS higher than a CD, obviously, but that risk is lower than it was 2-3 years ago, IMO........

 

[Nords]

And, DVY got slaughtered.

I guess the analysis should compare dividend rates among DVY, the equivalent utilities fund, and CDs. How long would you be planning to hold the shares?

DVY's 30-day yield is pushing 6%. (iShares Dow Jones Select Dividend Index Fund (DVY): Overview) We hold the same number of shares today that we held in 2007, when IIRC the yield was in the high threes.

 

[clifp]

I guess the analysis should compare dividend rates among DVY, the equivalent utilities fund, and CDs. How long would you be planning to hold the shares?

DVY's 30-day yield is pushing 6%. (iShares Dow Jones Select Dividend Index Fund (DVY): Overview) We hold the same number of shares today that we held in 2007, when IIRC the yield was in the high threes.

It seems to me that one of the principals of equity-income invested is yoo worry more about the income stream than the principal. Looking at DVY distribution schedule. While it is down 20% from its peak last year, it is flat from 3 years ago and up about 10% from 5 years ago. So while it is losing to inflation it hasn't been horrible 5 year investment.

The distributions of XLU have been pretty flat over the last 3 years so also not too bad.

 

[NW-Bound]

I bought some utilities in the aftermath of Enron, for cap gains more than for dividend. I had both individual stocks as well as the HOLDRs UTH. I have sold off most of the individuals with good gains but still keep the Holdrs. It went down just like the Dow!

If I buy more now, it would be to get some cap gains more than for the dividend. What I do not like is the impact of all the recent environmental talk. I was lucky when bottom fishing in the post-Enron era, but do not know how each of these utilities will be affected by carbon taxes. So, I am likely to stay away, and may get rid of the ETF too.