The Virtus Reaves Utilities ETF (NYSEARCA:UTES) is one of the only actively managed funds in the utilities category, and its 0.49% expense ratio sits near the top end of what utility investors will pay. That fee is several times what large passive peers like the Utilities Select Sector SPDR Fund (NYSEARCA:XLU) and the Vanguard Utilities ETF (NYSEARCA:VPU) charge, and it also runs above an equal-weight alternative such as the Invesco S&P 500 Equal Weight Utilities ETF (NYSEARCA:RSPU).
The question is whether UTES’s active portfolio, currently tilted toward independent power producers with heavy exposure to AI and data centers, justifies paying up. The answer depends on which sleeve of the utility trade an investor wants.
Why The Utility Trade Looks Different In 2026
Utilities used to be treated as bond proxies. That framing is breaking down. Electricity demand from AI training clusters, data center expansion, EV charging, and onshored manufacturing has forced grid operators and generators to add capacity for the first time in a generation. The JPMorgan 2026 Outlook lists utilities alongside industrials as enablers of the AI buildout.
Interest rates work against that tailwind. The Fed Funds upper bound sits at 3.75%, down 75 basis points from a year earlier, while the 10-year Treasury yields about 4.54%. Higher long yields compress dividend-stock valuations, and utilities are historically among the most rate-sensitive sectors. The mix of structural demand and rate pressure is why performance across utility ETFs has diverged over the past year.
UTES: A Concentrated Bet On The Generation Side
The Reaves Utilities ETF puts the AI-power narrative in a direct form. The fund holds just 19 positions, and the top three each carry roughly 10 percent weight, adding up to nearly a third of the assets. All three are independent power producers with significant exposure to nuclear and merchant generation. Investors buying this fund are wagering that competitive power prices, driven by data center offtake deals, will expand operator margins.
Reaves Asset Management runs UTES with a growth tilt rather than a dividend-first mandate, an approach FA Mag described in February 2026 as “playing offense in a defensive sector.” The trailing yield reflects that priority: UTES paid $1.19 over the last twelve months, working out to roughly a 1.5% yield at recent prices. That sits well below what a traditional regulated-utility portfolio delivers.
Performance against passive peers has been mixed. UTES returned about 10% over the past year, trailing XLU’s 13% and VPU’s 13%. Stretch the window, and the picture reverses: UTES is up 115% over five years versus 63% for XLU. The active bet has paid off across cycles, though not in every twelve-month window.
The tradeoffs with UTES are fairly direct. Concentration means a weak earnings report from one of the top three names can move the whole fund. Assets are roughly $1.59 billion, small enough that liquidity is thinner than in the largest passive peers. And the 0.50% expense ratio consumes roughly a third of the fund’s dividend income, which matters for investors who look at utilities primarily for yield.
XLU: The Default Passive Comparison
The Utilities Select Sector SPDR Fund is the largest utility ETF and the fund most investors default to. Its expense ratio sits at a small fraction of the fee charged by the Reaves Utilities ETF. That gap is the whole premise: paying a premium for active management only makes sense if the manager consistently beats what this fund delivers for close to nothing.
Portfolio construction is market-cap weighted and dominated by regulated giants. The largest holding, an integrated utility with heavy exposure to renewables, alone accounts for roughly 14 percent of the fund, with the top ten positions accounting for about 58 percent of assets. Independent power producers are present but held at smaller weights than the active fund assigns them.
The Utilities Select Sector SPDR Fund offers straightforward sector exposure without active management. The fund will not underweight regulated names to chase merchant power upside, nor overweight nuclear operators to lean into AI demand. Whatever the sector delivers on aggregate, this fund roughly captures, minus a few basis points of fees.
VPU: The Broader, Cheaper Cousin
The Vanguard Utilities ETF casts a wider net than the Utilities Select Sector SPDR Fund, tracking a broader MSCI utilities index that includes small and mid-cap names alongside the majors. Its expense ratio is comparable to that of the SPDR fund, and its one-year return of 13 percent essentially matched the SPDR fund’s over the same period.
The distinction between VPU and XLU is often academic. VPU holds more names, so single-stock risk is slightly lower, but the correlation between the two runs extremely tight. Investors already holding one rarely need the other. Where VPU stands out relative to UTES is in delivering utility exposure without a concentrated bet on merchant generators, at a fraction of the fee.
RSPU: The Equal-Weight Alternative
The Invesco S&P 500 Equal Weight Utilities ETF holds the same S&P 500 utility names as the Utilities Select Sector SPDR Fund, but it weights them equally rather than by market cap. That single design choice reshapes the exposure profile. In the SPDR fund, the top holding alone drives more than a tenth of the portfolio. Under equal weighting, each name gets a roughly equivalent slice regardless of size.
Equal weighting solves the concentration problem that dominates both UTES and XLU without requiring active management. Investors who worry about paying up for UTES’s concentrated growth tilt but want more exposure to smaller regulated utilities than XLU offers can use RSPU as a middle path. Its fee sits above XLU and VPU but well below UTES.
The tradeoff: equal weighting means periodically trimming winners and adding to laggards, which can drag on returns during strong momentum runs in the largest utility names. When mega-cap regulated utilities are leading, RSPU will trail its cap-weighted peers.
Which Utility ETF Fits Which Investor
The Reaves Utilities ETF is the right pick for investors who specifically want the AI-and-data-center power thesis expressed in concentrated form and are willing to pay for a manager who leans aggressively into that setup. The active premium is defensible only under that specific mandate. The 2025 return of about 26 percent shows what the strategy can produce when the setup works, though the past twelve months illustrate it can also lag.
The Utilities Select Sector SPDR Fund is the default for investors who want passive utility beta at nearly zero cost and are comfortable with heavy exposure to a handful of regulated giants. The Vanguard Utilities ETF offers essentially the same trade with slightly broader diversification and belongs on the shortlist for anyone who prefers the Vanguard fund structure or wants marginally more names in the portfolio.
The Invesco S&P 500 Equal Weight Utilities ETF is the option worth considering when concentration is the specific concern. It sidesteps both the Reaves fund’s growth bet and the Utilities Select Sector SPDR Fund’s cap-weighted skew without carrying an active fee. The right choice depends less on which fund is best in the abstract and more on which sleeve of the utility trade an investor actually wants exposure to.
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