XLU gives you exposure to over 30 utilities, but the AI data-center boom is quietly concentrating inside just a handful of them, and owning the fund means paying for a lot of names that will miss the surge entirely.
Traditionally speaking, when advisors and investors have thought about investing in utilities, it oftentimes is done for defensive purposes. Key Takeaways: Utilities tend to be added to portfolios for their defensive advantages amid inflation, but the sector offers more potential than meets the eye.
The Utilities Select Sector SPDR Fund (NYSEARCA:XLU) was the consensus “AI power” trade heading into 2026.
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The company operates a fund that focuses on tracking the performance of a specific index related to utilities. This includes a wide range of companies across various sectors such as electric utilities, water utilities, multi-utilities, independent power and renewable electricity producers, and gas utilities. By employing a replication strategy, the company aims to closely match the performance of the index, investing at least 95% of its total assets in the securities that constitute the index. Despite the fund's focus on a diverse range of utilities, it is classified as non-diversified due to its concentrated investment strategy.
This approach involves the fund investing in securities that closely match those found in the designated utilities index. By doing so, it aims to replicate the index's performance as closely as possible, providing investors with a transparent and predictable investment vehicle.
The fund's primary objective is to track the performance of a specific utilities index. This index is composed of a variety of companies across several sectors, including electric and water utilities, multi-utilities, renewable energy producers, and gas utilities. Tracking this index allows the fund to provide an investment option that benefits from the diversification within the utilities sector.
By investing substantially all of its assets in the securities comprising the index, the fund offers exposure to the utilities sector. This includes investments in electric utilities, water utilities, multi-utilities, independent power and renewable electricity producers, and gas utilities, covering a broad spectrum of the utilities industry.