Why Best Utility ETFs Are Winning After the Fed's Latest Rate Cut

The U.S. Federal Reserve’s December 10, 2025 decision to cut interest rates by 25 basis points—bringing the federal funds rate to 3.50-3.75%—has created a perfect storm for utility sector investors. This marks the third cut this year, and it’s already reshaping which assets make sense for defensive portfolios. Here’s the thing: utility companies are about to enter a sweet spot where their business model becomes significantly more attractive.

The Economics Are Simple: Lower Rates = Higher Utility Valuations

Utility companies operate on a fundamentally different model than growth stocks. They need massive upfront capital to build and maintain infrastructure, upgrade grids, and fund renewable energy transitions. When interest rates drop, the cost of servicing their debt falls sharply, which flows directly to the bottom line.

But there’s another angle. When bond yields drop and savings accounts offer minimal returns, income-seeking investors chase higher-dividend assets. Utilities are the classic refuge play—they’ve historically paid steady dividends, making them attractive when fixed income returns get squeezed. Add in the structural tailwind of rising electricity demand from AI data centers and the ongoing electrification of transportation and heating, and the investment thesis becomes even more compelling.

In this environment, utilities aren’t just defensive—they’re positioned for earnings growth and valuation re-rating simultaneously.

Single Stock Risk vs. Diversified ETF Exposure

Picking individual utility stocks comes with baggage: regulatory risk in specific states, project delays, management changes, or balance sheet issues at one company. A utility ETF solves this problem instantly by bundling 30-70+ companies into a single holding.

The best utility ETFs also offer something mutual funds can’t match: tight expense ratios (typically 8-38 basis points), high trading liquidity, and zero active management overhead. You get sector exposure without the stock-picking headache.

Top-Performing Utility ETFs to Consider

Fidelity MSCI Utilities Index ETF (FUTY) With $2.25 billion in assets, FUTY gives you a basket of 67 utility names. Its largest positions are NextEra Energy (11.41%), Constellation Energy (7.31%), and Southern Company (6.44%). Year-to-date performance sits at 17.1%, and the fund charges just 8 basis points. Trading volume averaged 0.30 million shares recently.

State Street Utilities Select Sector SPDR ETF (XLU) The heavyweight in the space—XLU commands $22.16 billion in assets and tracks 31 firms across electric, water, multi-utilities, and renewable energy. Top holdings mirror the sector leaders: NextEra Energy (12.80%), Constellation Energy (8.37%), Southern Company (7.07%). YTD return: 16.6%. Fee: 8 basis points. Last session volume: 19.17 million shares.

Vanguard Utilities ETF (VPU) With $8.3 billion under management and 68 holdings, VPU delivers broad diversification. Core positions include NextEra Energy (11.45%), Constellation Energy (7.34%), and Duke Energy (6.21%). Up 17.1% year-to-date with a minimal 9 basis point fee. Recent volume: 0.21 million shares.

iShares U.S. Utilities ETF (IDU) Managing $1.78 billion across 44 companies, IDU offers a mid-sized alternative. Holdings include NextEra Energy (11.05%), Constellation Energy (7.23%), and Southern Company (6.10%). Return: 15.7% YTD. Fee structure: 38 basis points (higher than peers). Volume: 0.09 million shares.

Invesco Dorsey Wright Utilities Momentum ETF (PUI) For momentum-focused investors, PUI tracks relative strength patterns across 35 utility companies. Top three holdings shift more frequently: Atmos Energy (3.91%), American Water Works (3.89%), NRG Energy (3.82%). Gains: 16.8% YTD. Higher fee of 81 basis points reflects active management. Volume: 0.003 million shares (thinner trading).

Building Your Position Now

The rate-cut cycle has fundamentally altered the risk-reward calculation for utilities. What was once seen as a “boring, defensive” sector now offers the combination of yield, earnings growth, and valuation upside. The best utility ETFs strip away stock-specific risk while keeping fees razor-thin.

Whether you go with the industry leader (XLU), the Vanguard alternative (VPU), or opt for broader diversification through Fidelity (FUTY), the key is acting while rate tailwinds are still fresh. The sector’s largest names—NextEra Energy, Constellation Energy, Southern Company, and Duke Energy—are showing up across most fund holdings for good reason. They’re the safest ways to capture utility sector strength in a lower-rate environment.