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In this stock market bloodbath, very few sectors have outperformed over time, except for energy, which has been growing rapidly amid a supply-side crisis. However, defensive stocks are inherently desirable, protecting them from market crashes. In the year Even during the financial crisis of 2008, they stood out in the trash.
Utility mutual funds are examples of such hedging instruments that protect investments during market downturns. Demand for basic services is usually unaffected by market volatility because of their irrational nature. Regardless of the economic situation, a family or business needs electricity, water or gas even if the price increases.
Because utilities pay regular dividends to shareholders, they are often considered long-term buy-and-hold options. Also, dividends on utility stocks are higher than those paid on other stocks.
Apart from energy and consumer goods, the consumer sector is another broad sector of the economy that has grown over the past year. In the year Since November 2022, the Utilities Select Sector SPDR ( XLU ) has gained 11.8% over the past 12 months. These funds also affect interest rates, and with the Fed ending its 75 bps hike at its December meeting, opting for a smaller, 50 bps hike could be a boost to the sector.
The sector has recently received policy attention from the US government. Joe Biden has pledged to invest nearly $2 trillion to achieve a 100% clean energy economy and net zero greenhouse gas emissions by 2050. This includes $1.6 billion for clean energy and climate adaptation in developing countries. For fiscal year 2023 only.
In conclusion, consumer mutual funds provide much-needed stability and growth potential in a market that is expected to remain volatile for some time. Therefore, prudent investors should consider such funds at present. Mutual funds generally reduce transaction costs and diversify portfolios without many of the commission fees associated with buying stocks (read more: Mutual Funds: Pros, Cons, and Where Investors Make Money).
So we’ve selected three utility mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), positive three-year and five-year annualized returns and low initial investments of $5000 to expense ratios. We have also ensured that at least 75 percent of the fund is invested in the consumer sector.
Fidelity Utilities Fund (FIUIX – Free Report) Seeks high gross income through current income generation and capital appreciation. FIUIX invests primarily in common stocks with at least 80% of assets in securities of utility companies. The fund invests in domestic and foreign issuers. The fund pays quarterly dividends in March, June, September and December. Capital gains are presented twice a year in March and December.
Douglas Simmons has been the managing director of FIUIX since September 29, 2005, and 78.3% of the fund is currently invested in the utilities sector. The top three holdings for FIUIX are Nextera Energy with 10.6%, Southern Company with 8.2% and Sempra Energy with 6.7%.
FIUIX’s 3-year and 5-year annualized returns are 6.4% and 7.8%, respectively. Its net expense ratio is 0.69% compared to the category average of 0.94%. FIUIX has a Zacks Mutual Fund Rank #1. To see how this fund has performed against its category and other 1 and 2 listed mutual funds, please click here.
Franklin Utilities Fund (FKUTX – (Free Report) seeks capital appreciation and current income by investing most of its net assets in securities of public utility companies. FKUTX invests mostly in equity securities, but a small portion of its assets is invested in debt securities. It provides quarterly dividend and capital gains, if any, annually.
John Kohli has been the CEO of FKUTX since December 30, 1998, and 95.7% of the fund is currently invested in the utilities sector. The top three holdings for FKUTX are Nextera Energy with 11.8%, Southern Company with 4.3% and Sempra Energy with 4.2%.
FKUTX’s 3-year and 5-year annualized returns are 7.3% and 7.8%. Its net expense ratio is 0.72% compared to the category average of 0.94%. FKUTX has a Zacks Mutual Fund Rank #2.
American Century Utilities Fund (BULIX – (Free Report) usually invests its assets in equity securities of companies from the utilities sector. Portfolio managers use quantitative and qualitative management techniques as well as risk controls to construct BULIX portfolios. The process involves rating stocks based on their growth and valuation characteristics.
Tsuyoshi Ozaki has been the CEO of BULIX since October 31, 2017, and 89.9% of the fund is currently invested in the utilities sector. The top three holdings for BULIX are Nextera Energy with 10.4%, Southern Company with 7.6% and Duke Energy with 7.4%.
BULIX’s 3-year and 5-year annualized returns are 3.4% and 4.7%, respectively. Its net expense ratio is 0.65% compared to the category average of 0.94%. BULIX Mutual Fund has a Zacks Rank #2.
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