FUTY ETF Outperforms S&P 500 as Utilities Surge — Analysts See 25% Upside

NYSEARCA:FUTY Strengthens As Utilities Sector Powers Ahead On AI-Driven Energy Demand

The Fidelity MSCI Utilities Index ETF (NYSEARCA:FUTY) is extending its lead in the utilities segment, trading near $57.17 (-0.71%), just below its 52-week high of $60.54, after an exceptional year marked by robust earnings across top holdings like NextEra Energy (NEE), Constellation Energy (CEG), Southern Company (SO), and Duke Energy (DUK). The ETF has surged 19% year-to-date, outperforming the S&P 500’s 16% gain, supported by record 23% sector-wide earnings growth in Q3 and rising long-term energy demand driven by AI data centers and electrification. With a 2.54% dividend yield, a 0.08% expense ratio, and an expanding $2.18B AUM, FUTY’s fundamentals remain among the strongest in the defensive-yield category. The fund’s 66-stock composition ensures broader diversification than its peer XLU, which holds only 31 companies, and positions it to capture sustained power infrastructure expansion through 2030.

Earnings Surge Across FUTY’s Core Holdings Boosts Valuation Momentum

Earnings strength from FUTY’s largest constituents continues to drive upside. NextEra Energy (NEE) reported 9.7% adjusted EPS growth in Q3, reaffirming guidance for high single-digit annual EPS expansion and double-digit dividend growth, while announcing $40 billion in infrastructure investment through Florida Power & Light. Constellation Energy (CEG) posted $3.04 EPS, up from $2.74 last year, and has gained over 50% year-to-date as it capitalizes on nuclear and renewable output expansion. Southern Company (SO) delivered $1.60 EPS, beating guidance by $0.10, with projected 9% annual revenue growth through 2030. Duke Energy (DUK) achieved $1.81 EPS versus $1.62 last year and plans $95–$105 billion in new CAPEX. Meanwhile, American Electric Power (AEP) raised its 5-year spending forecast to $72 billion, targeting 7–9% annual EPS growth. Together, these holdings, representing over 53% of FUTY’s portfolio, form the ETF’s earnings engine.

Broader Diversification Enhances Risk-Adjusted Returns For NYSEARCA:FUTY

FUTY’s 66 constituents span electric utilities (60%), multi-utilities (24%), independent producers (6%), gas utilities (4.5%), and water utilities (2.8%), providing broader exposure than XLU, which is concentrated in electric and multi-utilities. This diversified structure minimizes company-specific volatility while maintaining exposure to the highest-growth subsectors in power generation and renewable infrastructure. FUTY’s standard deviation averages 14.7% over 3 years, slightly below XLU’s 14.8%, underscoring smoother risk-adjusted performance. Despite its smaller scale ($2.18B AUM vs $22.5B for XLU), FUTY trades efficiently with an average daily volume of 25K shares and a median bid/ask spread of just 0.03%, ensuring liquidity for institutional flows.

AI, Electrification, And Rate Policy Are Driving The Utilities Supercycle

The transformation of the U.S. energy landscape underpins FUTY’s bullish outlook. Power demand, which had stagnated for nearly a decade, is now projected to grow 3.5% annually through 2040, propelled by AI-driven data center energy needs, industrial electrification, and EV adoption. S&P Global forecasts an additional 150–250 TWh of annual consumption by 2030, half of which will be tied directly to AI processing infrastructure. This shift forces utilities to deploy massive CAPEX in grid reinforcement, renewable capacity, and battery storage. The macro backdrop also plays in favor of utilities: after two years of aggressive tightening, Fed funds rate expectations are turning dovish, improving borrowing conditions for capital-intensive projects. Lower yields enhance the relative appeal of dividend-paying assets like FUTY, whose 2.5% yield outperforms many government bonds while maintaining price stability.

Valuation Metrics Highlight Undervalued Opportunity

At $57.17 per share, NYSEARCA:FUTY trades at a price-to-earnings ratio of 18.38, below the S&P 500’s 27x multiple, and a price-to-book of 2.26, indicating a valuation discount relative to broader equities. The ETF’s 21.6% total return year-to-date reflects its outperformance across cyclical and defensive phases. Its quarterly dividend of $0.37 is well-covered by the strong free cash flow profiles of its holdings, many of which are expanding their payout ratios alongside earnings. For long-term investors, this combination of low valuation, dividend consistency, and structural growth makes FUTY an attractive entry point below $58, particularly as sector P/E ratios remain below historical averages.

Comparison With XLU Confirms FUTY’s Strategic Edge

While both FUTY and XLU track the U.S. utilities sector closely, FUTY’s broader diversification and lower volatility give it an advantage for long-term capital appreciation. The ETF’s top 10 holdings make up 53.6% of assets versus XLU’s 59%, spreading risk across smaller but rapidly expanding renewable and gas utilities. Additionally, FUTY’s expense ratio of 0.08% matches XLU’s, yet its lower P/E ratio and greater subsector balance enhance its resilience against regulatory and single-company shocks. Over the past decade, FUTY has delivered a 10-year Sharpe ratio of 0.62, slightly above XLU, with less drawdown exposure (-17.6% vs -17.7%) during 2022’s rate spike.

Macroeconomic Sensitivity And Risk Factors

Although the outlook for utilities remains robust, investors should consider risks tied to delayed Fed rate cuts, as prolonged high yields could constrain near-term valuations. Regulatory pressure on grid expansion and environmental compliance may increase operational costs for companies like Duke Energy (DUK) and Dominion Energy (D). However, the essential nature of utility services and strong cash flow coverage across holdings buffer downside volatility. Government incentives for renewable integration and EV infrastructure continue to underpin revenue visibility for large players within FUTY’s portfolio.

Investment Outlook For NYSEARCA:FUTY: Positioning For The Next Energy Growth Cycle

The structural demand expansion for electricity, coupled with easing financial conditions, positions NYSEARCA:FUTY for continued strength into 2026. As the U.S. economy transitions into an AI-driven, electrified environment, utility earnings are projected to sustain high single-digit to double-digit growth, reinforcing the ETF’s long-term trajectory. The fund’s combination of 19% YTD price appreciation, 2.5% dividend yield, cheap valuation, and broad exposure across 66 holdings makes it a top-tier play on the energy infrastructure renaissance. With support near $56.50 and potential upside toward $64.00, FUTY offers an estimated 12–15% short-term upside and 25% medium-term potential as capital rotates back into defensive growth sectors.

Verdict: BUY — Strong long-term positioning with 25% upside potential driven by AI energy demand, electrification, and earnings expansion

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