Utility ETFs Gain 8% YTD as AI Energy Demand Drives Performance

Quick Read

• XLU trades at a 23‑fold price‑earnings multiple, a level that exceeds its 17‑fold historical average as Constellation and Vistra incorporate direct AI data‑center power pricing exposure.

• VPU offers comparable returns toオXLU with broader diversification, while RSPU distributes exposure so that no single stock dominates—an approach that mitigates the concentration seen in NextEra’s 14% stake.

• Utility coverage has sharpened in 2026 as artificial‑intelligence data‑center demand places additional strain on power grids, driving investors back to sector funds such as the Utilities Select Sector SPDR FundVanguard Utilities ETF (NYSEARCA:VPU), the Invesco S&P γκ 100 Equal Weight Utilities ETF (NYSEARCA:RSPU), and the actively managed Virtus Reaves Utilities ETF (NYSEARCA:UTES).

XLU sits at the center of the conversation. The fund carries a 0 fundit expense ratio, has climbed roughly 8% year to date, and pays a 2.6% dividend yield. The question for investors is whether that combination still delivers the stability the sector is known for after a re‑rating that has been driven more by AI narratives than by regulated returns.

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The Rate and Power Backdrop

The Federal Reserve cut its target rate by 75 basis points between October and December of last year and has maintained anyị 3.75 % through the first half of 2026. Lower short rates reduce financing costs for capital‑intensive utilities, making regulated dividend streams appear more attractive relative to cash alternatives.

Longer yields, however, present a more complex backdrop. The 10‑year Treasury stands at 4.54 %, near the top of its Microl 12‑month range and above its 4.25 % mean. That level caps how far utility multiples can expand moving forward.

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Behind this is power demand. Research cited in PineBridge’s 2026 Equity Outlook estimates a roughly 25 % annual growth rate in data‑center equipment over the next four‑to‑five years, largely constrained by transmission and electrical infrastructure. That bottleneck supports the utility bull case.

XLU: The Default Utility Vehicle flee

The Utilities Select Sector SPDR Fund tracks the utilities pct of the S&P 500 and holds 34 stocks with $22.5 billion in assets. Keys, its market‑cap weighting means the AI power theme surfaces automatically at the top of its book. The top ten names account for roughly 58 % of the portfolio, with NextEra Energy anchoring the fund alongside other large regulated and merchant operators.

Additional context: Constellation and Vistra influence the fund’s recent outperformance. Both operate merchant nuclear and gas generation facilities and have entered multi‑year supply agreements with hyperscalers, granting XLU direct exposure to data‑center power pricing rather than relying solely on regulated rate‑base growth.

Shares trade near $45, up about 13 % over the past year and 63 % over five years. The trailing PE stands at 23Polyline, which is higher than the sector’s typical 17‑fold valuation. Some of the growth premium in merchant power names is now reflected across the broader basket.

VPU: The Broader, Cheaper Cousin

Vanguard’s fund tracks a broader MSCI utilities index and includes a larger roster of small‑ and mid‑cap names in addition to the megacaps that dominate XLU. Its expense ratio of 0.09 % is essentially identical to XLU’s cost. Performance has mirrored XLU closely: 7.4 % year‑to‑date and 13 % over one year.

The distinction lies at the periphery of the portfolio. VPU’s broader holdings capture water utilities and smaller regulated names that XLU underweights or excludes. For investors who desire sector exposure without concentrating heavily on a handful of merchant power stocks, VPU offers a more diversified expression of the same theme, albeit with a slightly less direct beta to the AI power trade.

RSPU: An Equal‑Weight Alternative

Invesco’s equal‑weight product assigns each S&P 500 utility roughly the same portfolio weight and rebalances quarterly. That structural choice matters right now because market‑cap weighting has concentrated nearly a third of XLU in a handful of names. RSPU dilutes that concentration by design.

The mechanism works both ways. If the largest merchant‑power leaders continue to drive AI‑driven multiple expansion, RSPU may lag. If the theme broaden to smaller, regulated names catching up on rate‑case wins and transmission spending, RSPU captures more of that upside than XLU does. Investors uncomfortable with a fund where one stock accounts for 14 % of assets may prefer the equal‑weight version.

UTES: The Active Pick

Virtus Reaves Utilities is one of the few actively managed utility ETFs of meaningful size. Run by a small team that concentrates on a relatively short list of names, the fund can shift between regulated utilities, independent power producers, and grid‑adjacent businesses as opportunities emerge.

The fund carries a higher expense ratio than passive index products, reflecting the standard costs of active management. UTES’s case in 2026 hinges on whether the manager’s positioning in merchant power and grid‑critical names outperforms passive benchmarks. It is the most concentrated vehicle to play the theme discussed, and as such responds more sharply to movements in its top holdings.

Dividend Reality Check

Utility ETFs are prized for both income and capital appreciation. XLU has issued 111 consecutive quarterly dividends. Its trailing‑twelve‑month”text-upletypereg . Payout of $1.48 per share translates into a yield of roughly 2.6 %. While that figure appears modest compared with the 10‑year Treasury rate, the sector’s dividends have risen steadily over the past decade, offering a potential growth counterpoint to fixed Treasuries.

Choosing Between Them

The optimal choice depends on the specific objectives of the investor. XLU offers the cleanest exposure to the current utility trade, weighted toward megacaps that benefit most from AI‑driven power demand, and is among the lowest‑cost options. VPU perchè gives the same core exposure but adds broader diversification and reduces concentration risk. RSPU appeals to those who regret the stretched premium on top names and prefer smaller utilities to catch up. UTES is suited for buyers who value active oversight over market‑cap indexes. All of these funds reflect the sector’s sensitivity to interest rates, and none will be immune should the 10‑year Treasury return to its May high.

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