How to Invest in Electricity
Electricity is a relatively straightforward investment, though most investors do not think of this intangible asset as a commodity. Well before electricity was actually “discovered”, ancient societies were aware of its presence from electric fish, as they referred to these creatures as the “Thunderers of the Nile”. Many credit Benjamin Franklin as the first to discover electricity with his extensive testing involving a kite and a key on it, but researchers had been testing into the phenomenon long before that event.
As an investment, electricity has a relatively solid base; it is almost entirely inelastic as a large portion of the world relies on it to get through their every day lives. Recessions and market pullbacks will have little to no impact on its consumption, making it a solid long-term investment.
Ways to Invest in Electricity
There are 2 ways to invest in Electricity: ETFs and Futures. Click on the tabs below to learn more about each alternative.
What are Electricity ETFs?
There are no funds that directly invest in electricity, but there are plenty of products that off indirect exposure to this charged commodity. By far the most popular option is the Utilities Select Sector SPDR (XLU), which measures utilities companies in the US.
Other options include Vanguard Utilities ETF (VDU), iShares Dow Jones US Utilities Sector Index Fund (IDU), First Trust Utilities AlphaDEX Fund (FXU), and Guggenheim S&P 500 Equal Weight Utilities ETF (RYU) among many others.
Also note that utilities equities and ETFs tend to have attractive dividend payouts, giving them an added attraction to income investors.
What are Electricity Futures?
Some investors may be surprised to find the wide variety of futures contracts available on the NYMEX. Though none of them are optionable, investors can choose from a number of contracts that focus on varying parts of the country. It should be noted that the majority of these futures have relatively low volumes and their prices are reliant on seasonal trends.
Electricity in the News
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