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3 Utility Mutual Funds to Invest in as Rate Cuts Get Delayed
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Late last year, the Fed had promised a minimum of three rate cuts in 2024. Currently, it expects a 25 bps cut in the second half of the year to mark the first loosening of grip on monetary policy since early 2022. Market participants are currently betting on September being the only instance when the Fed cuts rates this year.
The central bank has reiterated that it wants to go through further economic data on jobs, inflation and various sectors before embarking on rate cuts. Inflation has cooled down significantly in recent months. The jobs market has slowed down as well while remaining resilient. Treasury yields have remained high, although they are down from the 16-year highs seen in late October. Unless the Fed reverses its monetary policy, markets are going to stay volatile for a while.
Defensive stocks remain in demand during market volatility because of their intrinsic nature. Utility mutual funds are examples of such defensive instruments that protect investments when the goings are not good. The steady nature of the sector is ensured by the fact that demand for essential services is relatively unaffected by market volatility because of their non-discretionary nature. Whatever the state of the economy, a household or a business needs electricity, water, or gas, even if prices go up.
In addition, utilities are usually considered long-term buy-and-hold options as they regularly declare dividends, and dividend yields on utility stocks are generally higher than those paid by other equities. In this environment, utility stocks provide much-required stability and growth potential. Hence, astute investors should consider such stocks at present. The utility sector has done very well this year already, with the S&P 500 Select Sector SPDR (XLU) advancing 11% year to date as of Jun 24, 2024.
In this environment, utility mutual funds provide much-required stability and growth potential. Hence, astute investors should consider such funds at present. 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).
We have thus selected three utility mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns and minimum initial investments within $5000, and carry a low expense ratio. We have also made sure that at least 70% of the fund is invested in the utility sector.
American Century Utilities Investor Shares (BULIX - Free Report) primarily invests in equity securities of utility companies. BULIX advisors use quantitative and qualitative management techniques as well as risk controls in arriving at their investment decisions. This involves ranking stocks based on their growth and valuation characteristics.
Stephen Quance has been the lead manager of BULIX since Aug 3, 2023, and 99% of the fund is currently invested in the utility sector. Three top holdings for BULIX are 11.1% in NextEra Energy, 7.1% in Duke Energy and 6.3% in The Southern Company.
BULIX’s 3-year and 5-year annualized returns are 4.8% and 5.5%, respectively. Its net expense ratio is 0.66%. BULIX 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.
Fidelity Select Utilities (FSUTX - Free Report) seeks capital appreciation and current income by investing the majority of its net assets in utilities and companies earning revenue from utility operations. FSUTX advisors use fundamental analysis of each issuer's financial condition and industry position, as well as market and economic conditions, to arrive at their investment decisions.
Douglas Simmons has been the lead manager of FSUTX since Oct 1, 2006, and 96.1% of the fund is currently invested in the utility sector. Three top holdings for FSUTX are 13.1% in NextEra Energy, 8.9% in Sempra and 6.6% in Constellation Energy.
FSUTX’s 3-year and 5-year annualized returns are 12.5% and 10.7%, respectively. Its net expense ratio is 0.73%, compared to the category average of 0.95%. FSUTX has a Zacks Mutual Fund Rank #1.
Franklin Utilities Fund (FKUTX - Free Report) invests the majority of its net assets in equity and equity-related securities of utility companies. These consist mainly of common stocks.
John Kohli has been the lead manager of FKUTX since Dec 30, 1998, and 95.5% of the fund is currently invested in the utility sector. Three top holdings for FKUTX are 9.7% in NextEra Energy and 5.5% each in The Southern Company and Edison International.
FKUTX’s 3-year and 5-year annualized returns are 7.5% and 7.7%, respectively. Its net expense ratio is 0.72%, compared to the category average of 0.96%. FKUTX has a Zacks Mutual Fund Rank #2.
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3 Utility Mutual Funds to Invest in as Rate Cuts Get Delayed
Late last year, the Fed had promised a minimum of three rate cuts in 2024. Currently, it expects a 25 bps cut in the second half of the year to mark the first loosening of grip on monetary policy since early 2022. Market participants are currently betting on September being the only instance when the Fed cuts rates this year.
The central bank has reiterated that it wants to go through further economic data on jobs, inflation and various sectors before embarking on rate cuts. Inflation has cooled down significantly in recent months. The jobs market has slowed down as well while remaining resilient. Treasury yields have remained high, although they are down from the 16-year highs seen in late October. Unless the Fed reverses its monetary policy, markets are going to stay volatile for a while.
Defensive stocks remain in demand during market volatility because of their intrinsic nature. Utility mutual funds are examples of such defensive instruments that protect investments when the goings are not good. The steady nature of the sector is ensured by the fact that demand for essential services is relatively unaffected by market volatility because of their non-discretionary nature. Whatever the state of the economy, a household or a business needs electricity, water, or gas, even if prices go up.
In addition, utilities are usually considered long-term buy-and-hold options as they regularly declare dividends, and dividend yields on utility stocks are generally higher than those paid by other equities. In this environment, utility stocks provide much-required stability and growth potential. Hence, astute investors should consider such stocks at present. The utility sector has done very well this year already, with the S&P 500 Select Sector SPDR (XLU) advancing 11% year to date as of Jun 24, 2024.
In this environment, utility mutual funds provide much-required stability and growth potential. Hence, astute investors should consider such funds at present. 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).
We have thus selected three utility mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns and minimum initial investments within $5000, and carry a low expense ratio. We have also made sure that at least 70% of the fund is invested in the utility sector.
American Century Utilities Investor Shares (BULIX - Free Report) primarily invests in equity securities of utility companies. BULIX advisors use quantitative and qualitative management techniques as well as risk controls in arriving at their investment decisions. This involves ranking stocks based on their growth and valuation characteristics.
Stephen Quance has been the lead manager of BULIX since Aug 3, 2023, and 99% of the fund is currently invested in the utility sector. Three top holdings for BULIX are 11.1% in NextEra Energy, 7.1% in Duke Energy and 6.3% in The Southern Company.
BULIX’s 3-year and 5-year annualized returns are 4.8% and 5.5%, respectively. Its net expense ratio is 0.66%. BULIX 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.
Fidelity Select Utilities (FSUTX - Free Report) seeks capital appreciation and current income by investing the majority of its net assets in utilities and companies earning revenue from utility operations. FSUTX advisors use fundamental analysis of each issuer's financial condition and industry position, as well as market and economic conditions, to arrive at their investment decisions.
Douglas Simmons has been the lead manager of FSUTX since Oct 1, 2006, and 96.1% of the fund is currently invested in the utility sector. Three top holdings for FSUTX are 13.1% in NextEra Energy, 8.9% in Sempra and 6.6% in Constellation Energy.
FSUTX’s 3-year and 5-year annualized returns are 12.5% and 10.7%, respectively. Its net expense ratio is 0.73%, compared to the category average of 0.95%. FSUTX has a Zacks Mutual Fund Rank #1.
Franklin Utilities Fund (FKUTX - Free Report) invests the majority of its net assets in equity and equity-related securities of utility companies. These consist mainly of common stocks.
John Kohli has been the lead manager of FKUTX since Dec 30, 1998, and 95.5% of the fund is currently invested in the utility sector. Three top holdings for FKUTX are 9.7% in NextEra Energy and 5.5% each in The Southern Company and Edison International.
FKUTX’s 3-year and 5-year annualized returns are 7.5% and 7.7%, respectively. Its net expense ratio is 0.72%, compared to the category average of 0.96%. FKUTX has a Zacks Mutual Fund Rank #2.
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 >>