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4 Utility Mutual Funds to Buy as Recession Alarm Rings Loud
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The chatter of an impending recession is no more a hush on wall street. The shock from the sudden failure of Silicon Valley Bank, followed by Signature Bank and the takeover of Credit Suisse by its European rival UBS has left the investor community with questions about whether the Federal Reserve has overstepped with its aggressive rate hike stances.
Domestic inflation for the month of March came in at 5% year over year mostly driven by lower energy prices. However, the Fed’s ambitious target for 2% inflation over time looks distant. The Dow, the S&P 500, and the Nasdaq have gained 2.87%, 8.59%, and 16.82%, respectively, so far this year.
Since getting control over inflation is the Fed’s primary target and the current rise in prices is twice its expectation, the Fed will probably hike overnight interest rates by a quarter of a percentage in its upcoming meeting before pausing. Since last March, the Fed has increased its benchmark overnight interest rate by 450 basis points from the near-zero level to the current 4.50-4.75% range. Investors are worried about whether the Fed’s decision can make a soft landing for the economy by striking the right balance between the higher interest rate and inflation. Higher interest rates affect businesses and consumers, increase borrowing cost, and negatively impact stock markets.
Domestic retail sales declined by 1% in March after two months of consecutive falls mostly due to less demand for cars, clothes, and pieces of furniture. Manufacturing PMI dropped to 46.3% in the same period. The Fed excepts higher interest rates to slow down business activity and cut down demand for labor. However, the domestic labor market remained strong, adding more than 1 million jobs over the past three months and driving away unemployment.
Many other countries are facing high inflation mostly due to increased energy prices. Western sanctions imposed on Russian oil and gas to protest its continuous war against Ukraine have created an enormous energy shortage. Supply-chain disruption has pushed prices high, which in turn, will affect business profitability. Utility stocks in such times generally give reliable earnings due to the nature of their business. Demand for essential household services like electricity, natural gas, water distribution, telecom, and infrastructure remains inelastic even during a recession.
Thus, from an investment standpoint, we have selected four utility mutual funds that are expected to hedge your portfolio against volatile market conditions and gain attractive returns. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
These funds, by the way, have given impressive 3-year and 5-year returns as well, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio compared to the category average.
Fidelity Select Utilities Growth Portfolio (FSUTX - Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in the utility industry and companies deriving most of their revenues from their utility operations. FSUTX advisors choose to invest in stocks based on fundamental analysis factors such as the issuer's financial condition, industry position, as well as market and economic conditions.
Douglas Simmons has been the lead manager of FSUTX since Oct 2, 2006, and most of the fund’s holdings were in companies like NextEra Energy (15.38%), Southern Co (10.58%) and Sempra (6.95%) as of Nov 30, 2022.
FSUTX’s 3-year and 5-year returns are 13.6% and 9.6%, respectively. The annual expense ratio is 0.73% compared to the category average of 0.94%. FSUTX has a Zacks Mutual Fund Rank #1.
To see how this fund performed compared to its category and other 1 and 2 Ranked Mutual Funds, please click here.
PGIM Jennison Utility Fund (PRUZX - Free Report) invests most of its assets, along with borrowings, if any, in equity and equity-related and investment-grade debt securities of utility companies. PRUZX fund is non-diversified.
Shaun Hong has been the lead manager of PRUZX since Sep 30, 2000, and most of the fund’s holdings were in companies like NextEra Energy (15.04%), Cheniere Energy (5.78%) and Constellation Energy (5.41%) as of Nov 30, 2022.
PRUZX’s 3-year and 5-year returns are 11.1% and 9.5%, respectively. The annual expense ratio of 0.55% is lower than the category average of 0.94%. PRUZX has a Zacks Mutual Fund Rank #2.
Franklin Utilities Fund (FRUAX - Free Report) invests most of its net assets in equity securities of public utility companies that provide electricity, natural gas, water, and communications services to the public and companies that provide services to public utility companies. FRUAX advisors also invest a relatively small portion of their assets in companies operating in the utility industry.
John Kohli has been the lead manager of FRUAX since Dec 31, 1998. Most of the fund’s holdings were in companies like NextEra Energy (11.79%), Southern Co (4.26%), and Duke Energy (4.20%) as of Dec 31, 2022.
FRUAX’s 3-year and 5-year returns are 10.9% and 9.6%, respectively. The annual expense ratio is 0.57% compared to the category average of 0.94%. FRUAX has a Zacks Mutual Fund Rank #1.
Cohen & Steers Global Infrastructure Fund (CSUZX - Free Report) invests most of its net assets in common stocks and equity securities of domestic and foreign infrastructure companies that are engaged in utilities, pipelines, toll roads, airports, railroads, marine ports, and telecommunications companies’ businesses. CSUZX advisors also invest a substantial amount of their net assets in companies outside the United States.
Benjamin Morton has been the lead manager of CSUZX since Apr 1, 2008. Most of the fund’s holdings were in companies like NextEra Energy (6.48%), Norfolk Southern (4.85%) and Transurban Group (4.80%) as of Dec 31, 2022.
CSUZX’s 3-year and 5-year returns are 10.3% and 6.6%, respectively. The annual expense ratio is 0.86% compared to the category average of 1.16%. CSUZX has a Zacks Mutual Fund Rank #1.
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4 Utility Mutual Funds to Buy as Recession Alarm Rings Loud
The chatter of an impending recession is no more a hush on wall street. The shock from the sudden failure of Silicon Valley Bank, followed by Signature Bank and the takeover of Credit Suisse by its European rival UBS has left the investor community with questions about whether the Federal Reserve has overstepped with its aggressive rate hike stances.
Domestic inflation for the month of March came in at 5% year over year mostly driven by lower energy prices. However, the Fed’s ambitious target for 2% inflation over time looks distant. The Dow, the S&P 500, and the Nasdaq have gained 2.87%, 8.59%, and 16.82%, respectively, so far this year.
Since getting control over inflation is the Fed’s primary target and the current rise in prices is twice its expectation, the Fed will probably hike overnight interest rates by a quarter of a percentage in its upcoming meeting before pausing. Since last March, the Fed has increased its benchmark overnight interest rate by 450 basis points from the near-zero level to the current 4.50-4.75% range. Investors are worried about whether the Fed’s decision can make a soft landing for the economy by striking the right balance between the higher interest rate and inflation. Higher interest rates affect businesses and consumers, increase borrowing cost, and negatively impact stock markets.
Domestic retail sales declined by 1% in March after two months of consecutive falls mostly due to less demand for cars, clothes, and pieces of furniture. Manufacturing PMI dropped to 46.3% in the same period. The Fed excepts higher interest rates to slow down business activity and cut down demand for labor. However, the domestic labor market remained strong, adding more than 1 million jobs over the past three months and driving away unemployment.
Many other countries are facing high inflation mostly due to increased energy prices. Western sanctions imposed on Russian oil and gas to protest its continuous war against Ukraine have created an enormous energy shortage. Supply-chain disruption has pushed prices high, which in turn, will affect business profitability. Utility stocks in such times generally give reliable earnings due to the nature of their business. Demand for essential household services like electricity, natural gas, water distribution, telecom, and infrastructure remains inelastic even during a recession.
Thus, from an investment standpoint, we have selected four utility mutual funds that are expected to hedge your portfolio against volatile market conditions and gain attractive returns. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
These funds, by the way, have given impressive 3-year and 5-year returns as well, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio compared to the category average.
Fidelity Select Utilities Growth Portfolio (FSUTX - Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in the utility industry and companies deriving most of their revenues from their utility operations. FSUTX advisors choose to invest in stocks based on fundamental analysis factors such as the issuer's financial condition, industry position, as well as market and economic conditions.
Douglas Simmons has been the lead manager of FSUTX since Oct 2, 2006, and most of the fund’s holdings were in companies like NextEra Energy (15.38%), Southern Co (10.58%) and Sempra (6.95%) as of Nov 30, 2022.
FSUTX’s 3-year and 5-year returns are 13.6% and 9.6%, respectively. The annual expense ratio is 0.73% compared to the category average of 0.94%. FSUTX has a Zacks Mutual Fund Rank #1.
To see how this fund performed compared to its category and other 1 and 2 Ranked Mutual Funds, please click here.
PGIM Jennison Utility Fund (PRUZX - Free Report) invests most of its assets, along with borrowings, if any, in equity and equity-related and investment-grade debt securities of utility companies. PRUZX fund is non-diversified.
Shaun Hong has been the lead manager of PRUZX since Sep 30, 2000, and most of the fund’s holdings were in companies like NextEra Energy (15.04%), Cheniere Energy (5.78%) and Constellation Energy (5.41%) as of Nov 30, 2022.
PRUZX’s 3-year and 5-year returns are 11.1% and 9.5%, respectively. The annual expense ratio of 0.55% is lower than the category average of 0.94%. PRUZX has a Zacks Mutual Fund Rank #2.
Franklin Utilities Fund (FRUAX - Free Report) invests most of its net assets in equity securities of public utility companies that provide electricity, natural gas, water, and communications services to the public and companies that provide services to public utility companies. FRUAX advisors also invest a relatively small portion of their assets in companies operating in the utility industry.
John Kohli has been the lead manager of FRUAX since Dec 31, 1998. Most of the fund’s holdings were in companies like NextEra Energy (11.79%), Southern Co (4.26%), and Duke Energy (4.20%) as of Dec 31, 2022.
FRUAX’s 3-year and 5-year returns are 10.9% and 9.6%, respectively. The annual expense ratio is 0.57% compared to the category average of 0.94%. FRUAX has a Zacks Mutual Fund Rank #1.
Cohen & Steers Global Infrastructure Fund (CSUZX - Free Report) invests most of its net assets in common stocks and equity securities of domestic and foreign infrastructure companies that are engaged in utilities, pipelines, toll roads, airports, railroads, marine ports, and telecommunications companies’ businesses. CSUZX advisors also invest a substantial amount of their net assets in companies outside the United States.
Benjamin Morton has been the lead manager of CSUZX since Apr 1, 2008. Most of the fund’s holdings were in companies like NextEra Energy (6.48%), Norfolk Southern (4.85%) and Transurban Group (4.80%) as of Dec 31, 2022.
CSUZX’s 3-year and 5-year returns are 10.3% and 6.6%, respectively. The annual expense ratio is 0.86% compared to the category average of 1.16%. CSUZX has a Zacks Mutual Fund Rank #1.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>