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3 Utility Mutual Funds to Invest in as Rate Cuts Draw Closer
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Late last year, the Fed had promised a minimum of three rate cuts in 2024. Currently, the market expects interest rate cuts in September to mark the first loosening of grip on monetary policy since tightening started in early 2022. The central bank wants to analyze further economic data on jobs, inflation and various sectors before embarking on rate cuts. However, after a recent spate of data from the labor market warning of an economic slowdown, expectations are that there would be at least two rate cuts announced this year.
Inflation has cooled down significantly in recent months. The jobs market has slowed down as well, albeit remaining robust and resilient. It looks very likely that once the Fed takes the plunge, rates will come down fast. After the 2008 sub-prime crisis, the Fed cut interest rates to stimulate the economy. On cue, investors flocked to utilities, which are viable defensive choices during macroeconomic downturns. There is no reason why history will not repeat itself. The sector has done very well this year already, with the S&P 500 Select Sector SPDR (XLU) advancing 16.7% year to date as of Jul 31, 2024.
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.
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 August 2023. Three top holdings for BULIX are 10.6% in NextEra Energy, 8.7% in Duke Energy and 5.3% in Constellation Energy.
BULIX’s 3-year and 5-year annualized returns are 4.1% and 4.8%, respectively. Its net expense ratio is 0.66%. BULIX has a Zacks Mutual Fund Rank #2. 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 October 2006. Three top holdings for FSUTX are 15.9% in NextEra Energy, 7.1% in Sempra and 6.9% in Constellation Energy.
FSUTX’s 3-year and 5-year annualized returns are 11.2% and 9.6%, respectively. Its net expense ratio is 0.73%, compared to the category average of 0.95%. FSUTX has a Zacks Mutual Fund Rank #1.
Cohen & Steers Global Infrastructure (CSUZX - Free Report) invests the majority of its net assets in equity and equity-related securities of companies that comprise utilities, pipelines, toll roads, airports, railroads, marine ports, telecommunications and other infrastructure.
Thuy Quynh Dang has been the lead manager of CSUZX since January 2022. Three top holdings for CSUZX are 5.4% in American Tower and 5% in NextEra and 4.3% in TC Energy.
CSUZX’s 3-year and 5-year annualized returns are 4.6% and 5.7%, respectively. Its net expense ratio is 0.86%. FKUTX has a Zacks Mutual Fund Rank #1.
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3 Utility Mutual Funds to Invest in as Rate Cuts Draw Closer
Late last year, the Fed had promised a minimum of three rate cuts in 2024. Currently, the market expects interest rate cuts in September to mark the first loosening of grip on monetary policy since tightening started in early 2022. The central bank wants to analyze further economic data on jobs, inflation and various sectors before embarking on rate cuts. However, after a recent spate of data from the labor market warning of an economic slowdown, expectations are that there would be at least two rate cuts announced this year.
Inflation has cooled down significantly in recent months. The jobs market has slowed down as well, albeit remaining robust and resilient. It looks very likely that once the Fed takes the plunge, rates will come down fast. After the 2008 sub-prime crisis, the Fed cut interest rates to stimulate the economy. On cue, investors flocked to utilities, which are viable defensive choices during macroeconomic downturns. There is no reason why history will not repeat itself. The sector has done very well this year already, with the S&P 500 Select Sector SPDR (XLU) advancing 16.7% year to date as of Jul 31, 2024.
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.
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 August 2023. Three top holdings for BULIX are 10.6% in NextEra Energy, 8.7% in Duke Energy and 5.3% in Constellation Energy.
BULIX’s 3-year and 5-year annualized returns are 4.1% and 4.8%, respectively. Its net expense ratio is 0.66%. BULIX has a Zacks Mutual Fund Rank #2. 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 October 2006. Three top holdings for FSUTX are 15.9% in NextEra Energy, 7.1% in Sempra and 6.9% in Constellation Energy.
FSUTX’s 3-year and 5-year annualized returns are 11.2% and 9.6%, respectively. Its net expense ratio is 0.73%, compared to the category average of 0.95%. FSUTX has a Zacks Mutual Fund Rank #1.
Cohen & Steers Global Infrastructure (CSUZX - Free Report) invests the majority of its net assets in equity and equity-related securities of companies that comprise utilities, pipelines, toll roads, airports, railroads, marine ports, telecommunications and other infrastructure.
Thuy Quynh Dang has been the lead manager of CSUZX since January 2022. Three top holdings for CSUZX are 5.4% in American Tower and 5% in NextEra and 4.3% in TC Energy.
CSUZX’s 3-year and 5-year annualized returns are 4.6% and 5.7%, respectively. Its net expense ratio is 0.86%. FKUTX 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 >>