Time to Buy the Vanguard Utilities Index Fund ETF to Take Advantage of a Growing Trend?

When a blackout happens, modern life comes to a standstill. Almost everything stops because so many things rely on electricity today. For years utilities were looked at as sleepy investments, which they were. But the world is about to take a giant leap forward, leaning into electricity like never before. Now is the time to buy the Vanguard Utilities Index Fund ETF (NYSEMKT: VPU), to take advantage of the decades of growth opportunity ahead.

What's utility giant NextEra Energy saying about power demand?

NextEra Energy (NYSE: NEE) is one of the largest utilities in the United States, with a market cap of more than $140 billion. What's interesting about the business is that it operates in both the regulated utility space and the clean energy sector, where it is one of the largest producers of solar and wind power on the planet. It has a bird's-eye view of electricity demand.

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NextEra Energy is very clear about what it sees happening. Between 2000 and 2020, electricity demand grew 9%. That's not 9% per year, that's a grand total of 9% over the entire 20-year time period. That's the baseline that investors have gotten used to, and that's why utilities are viewed as sleepy income stocks.

NextEra Energy expects electricity demand to grow by 55% between 2020 and 2040. That's a steep change, and a significant one at that. This assessment is backed by the National Electrical Manufacturers Association (NEMA), which expects electricity use to increase from 21% of final energy use to 32% by 2050. If you haven't looked at utility stocks before, you might want to now so you can take advantage of this growing demand trend.

Buy stocks or go with the Vanguard Utilities Index Fund ETF?

You could buy individual utility stocks to take advantage of this investment opportunity. NextEra Energy, for example, appears well situated, since NEMA is projecting notable growth for renewable energy. But NextEra's utility stronghold is in Florida, and NEMA believes the biggest growth drivers will be different in different regions. In other words, the better way to take advantage of the big-picture trend is with a utility ETF that provides broader exposure.

The Vanguard Utilities Index Fund ETF tracks the MSCI US Investable Market Utilities 25/50 Index. Although it's a bit complex, this index basically attempts to track a diversified portfolio of large-, mid-, and small-cap U.S. utilities. Electric utilities account for roughly 85% of the index. The portfolio contains 68 stocks, and the expense ratio is a modest 0.09%.

VPU data by YCharts.

Although you might make out better picking one great utility, that's a harder task than it may seem. NextEra Energy is a good example, because it is well run and has grown faster than most of its peers. But it also tends to trade at a premium to other utility stocks.

Southern Company (NYSE: SO) is another interesting example from the ETF's holdings. It spent years in the Wall Street doghouse while it was building two nuclear reactors. Once the project, which was late and over budget, was complete, the stock price rallied. Then there's Dominion Energy (NYSE: D), yet another ETF holding, which is currently out of favor because it's in the middle of a business turnaround. Only Dominion operates in one of the largest data center markets in the world. With so many different stories and investment timelines, punting with a diversified ETF like the Vanguard Utilities Index Fund ETF is an easy solution.

Buy the Vanguard Utilities Index Fund ETF for the yield and the growth

What's nice about the Vanguard Utilities Index Fund ETF is that it lets you take advantage of the growth potential ahead for a sector that's expected to see materially increased demand. It does so while providing diversification and income, given its nearly 3% dividend yield. For reference, that's more than twice the yield you would collect from the S&P 500 index (SNPINDEX: ^GSPC). Overall, growth and income investors will both find the Vanguard Utilities Index Fund ETF an attractive way to play a massive change in U.S. electricity demand.

Should you invest $1,000 in NextEra Energy right now?

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Reuben Gregg Brewer has positions in Dominion Energy and Southern Company. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.