Portfolio Evolution - Simplifying My Allocation To Utilities

In which I choose to take the simpler path.

If you were to compare my most recent ‘Take a peek into ETF Monkey’s portfolio’ offering with an earlier version, you would notice something. Actually, you would notice several things. But, for this note, I will focus on just one.

A Dedicated Allocation To Utilities

In the ‘by asset class’ overview of the earlier version, you would notice a dedicated target weight of 2.57% to utilities. Some years back, I decided that I liked this approach, as utilities are truly fundamental to how more or less everything else operates. You can do without a lot of things in life but, for most of us, utilities are not in that category.

Further, maintaining a dedicated allocation to this asset class is not at all difficult. My ETF of choice was Vanguard Utilities ETF (VPU). It’s a great ETF; been around since 2004, almost $5 billion in AUM, expense ratio quite modest at .10%. Here’s a look at VPU’s Top-10 holdings.

Again, nothing at all wrong with VPU. However, a couple of months back, I made another rather significant adjustment to my portfolio and, in the process, picked up a healthy number of shares of Vanguard High Dividend Yield ETF (VYM) and iShares Core Dividend Growth ETF (DGRO). Additionally, I already held shares of iShares Core High Dividend ETF (HDV).

A Realization

In the process of reexamining VYM for possible inclusion in my portfolio, I noticed something. Sure, I had noticed it before when writing about this ETF, but perhaps I thought about it a different way this time around.

Have a look at the last asset class in VYM’s breakdown.

That’s right. Utilities. At an almost 8% weighting at that.

Digging just a little further into VYM’s full portfolio holdings list, I quickly noticed that all of VPU’s Top-10 holdings are in VYM as well. Not as heavily weighted, of course, but there.

In the VPU Top-10 list above, you will quickly find Duke Energy, Southern Co, and Dominion Energy. I picked these 3 because their weightings are fairly close together, so I could capture them nicely in the below screen capture from VYM.

Continuing my exploration, I next decided to take a closer look at HDV, one of my existing holdings. Have a look at what I found.

Yep, there they are again. Utilities. Not only that, but an 11.06% weighting among this ETF’s relatively small total of 75 holdings. Further, several of the heavily-weighted names in VPU are found here as well.

One last factor. While, as featured above, VPU has an attractive expense ratio of .10%, VYM and HDV sport even lower ratios, at .06% and .08%, respectively. Bear in mind, I am a long-term investor. So even these little details add up over time.

Simplification

And so, I made the decision to simplify. I decided that, while I liked the idea of holding utilities in my portfolio, I didn’t need to go to all the trouble of maintaining them as a distinct asset class, rebalancing in and out of them, and the like.

So, I sold my holdings in VPU and, as mentioned previously, as part of a larger simplification and restructuring, added a substantial amount of VYM and DGRO. Between the significant amount of VYM I added, and my existing holdings in HDV, I am happy with my new, simplified, exposure to utilities.

Department of Shameless Plugs

Thanks for reading. Please feel free to . . .

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Until next time, I wish you . . .

Happy investing.