Utility ETFs May Be Overvalued

The utility sector has been historically safe, but is it too safe for your money?

Over the course of the past five years, utility ETFs such as the iShares Dow Jones U.S. Utilities Fund(IDU Quote) and the Utilities Select SPDR(XLU Quote) have seen price appreciation of approximately 100%. In 2007, these two ETFs were up 13.5% and 16.3%, respectively.

Not too shabby.

With all of the volatility in the market recently, there's certainly a compelling argument that these utility ETFs might be a safer, more stable investment than the market itself. They also have dividend yields between 2.5% and 3.0% and are fairly defensive in nature, given the high degree of inelastic demand for many utilities. ...