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ETFs for the Power Acquisition Binge

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A variety of ways to use exchange traded funds with access to likely targets and buyers.

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Editor's Note: This content was originally published on Benzinga.com.


One analyst says the recent spate of acquisitions in the US power sector is "just the tip of the iceberg." Bloomberg News reports that deals in the sector have jumped more than 20-fold in value in the first eight months of the year.

Knowing that more deals like Blackstone's (BX) $4.7 billion purchase of Dynegy (DYN) could be on the way makes it an ideal time to take a look at power and utilities ETFs that hold companies that are both targets and buyers.

Pure-play utilities options include Utilities Select Sector SPDR (XLU) and the Vanguard Utilities ETF (VPU): Regulated utilities face little in the way of growth prospects and the recession has pressured their profit margins, so acquisitions are the best way for these companies to boost the bottom line.

Look for Duke Energy (DUK) and Exelon (EXC), both of which can be found in both ETFs, to be on the prowl for acquisitions. If nothing else, you'll get decent yields with both ETFs.

For a global option, consider SPDR FTSE/Macquarie Global Infrastructure 100 ETF (GII). This ETF has a good mix of US-based companies like Duke and Exelon as well as European and Asian firms.

GII is also a play on power infrastructure in addition to the actual sale and production of electricity. Plus, this ETF yields over 4%.

Consider First Trust Utilities AlphaDEX ETF (FXU) as a quantitative play. FXU takes a different approach by attempting to generate positive alpha relative to traditional passive-style indices through the use of the AlphaDEX screening methodology, according to the ETF's profile.

This isn't a pure play on utilities, but it's basically defensive as you'll find stocks like AT&T (T) and CenturyLink (CTL) among the top 10 holdings.

Another infrastructure play could be First Trust NASDAQ CleanEdge Smart Grid Infrastructure Index Fund (GRID): If you're betting on a boom in smart-grid technology, GRID is your play. As an M&A play, GRID may be a bit speculative at this point, but could bear fruit down the road.


Below, find some more great ETF and market content from Benzinga:

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ETFs to Watch August 31, 2010
No positions in stocks mentioned.
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