The Wall Street bloodbath continued on Tuesday as investors fear that President Donald Trump’s tariff policies would further impact an already weak economy, which could slip into a recession. Also, inflation has been on the rise, compelling the Federal Reserve to halt interest rate cuts in January and it is unlikely it will resume anytime soon.

Given the uncertainty, it would be safe to invest in utility funds like Fidelity Select Utilities (FSUTX Quick QuoteFSUTX - Free Report) , American Century Utilities Inv (BULIX Quick QuoteBULIX - Free Report) and Franklin Utilities Fund (FKUTX Quick QuoteFKUTX - Free Report) .

Trade War Escalates Triggering Recession Fears

All three major indexes have sharply retreated from their earlier highs over the past month, with the Nasdaq entering correction territory this week. The S&P 500 is also on the brink of correction, which is typically defined as a decline of 10% from its record high. On Tuesday, the Dow, the Nasdaq and the S&P 500 slid 1.1%, 0.2% and 0.8%, respectively.

The decline came as Trump escalated his trade war with Canada. On Monday, Canada announced a 25% retaliatory tariff on electricity supplied to some U.S. states after Trump had earlier imposed a 25% tariff on Canadian and Mexican steel and aluminum imports.

Canada’s retaliatory move enraged Trump, which saw him slap an additional 25% tariff on Canadian steel and aluminum imports. Investors panicked that steep tariffs could further weaken the economy and push it into a recession. Even Trump didn’t rule out a recession over the weekend.

Markets have been volatile for most of this year as a batch of soft economic data has been denting investors’ confidence. Inflation has been on the rise again, compelling the Federal Reserve to leave interest rates unchanged in its January policy meeting after slashing it by 100 basis points since September.

Trump’s tariffs have added fuel to the fire, rattling stocks. The volatility is likely to continue for a longer period until investors get a clear idea about Trump’s tariff policies. Also, it is unlikely that the Fed will go for an other rate cut before the second half of the year, or till inflation shows signs of a steady decline.

3 Best Choices

We've identified three utility mutual funds that have demonstrated impressive annualized returns over 3-year and 5-year periods. These funds also hold a Zacks Mutual Fund Rank of #1 (Strong Buy), require an initial investment of no more than $5,000 and have a low expense ratio.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Utilities fund seeks capital appreciation. FSUTX normally invests at least 80% of its assets in common stocks of companies principally engaged in utilities and companies deriving the majority of their revenues from utility operations.

FSUTX’s 3-year and 5-year annualized returns are 12.1% and 8.9%, respectively. Fidelity Select Utilities fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.67%, which is lower than its category average of 0.96%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

American Century Utilities Inv fund seeks current income and long-term capital growth. BULIX mainly invests 80% of its assets in stocks of companies engaged in the utilities industry. Within this 80% category, the managers will not buy shares of a company unless 50% or more of the company's revenues or net profits come from the ownership or operation of facilities used to provide electricity, natural gas, telecommunications services, cable television, water or sanitary services.

BULIX’s 3-year and 5-year annualized returns are 5.6% and 3.7%, respectively. American Century Utilities Invfund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.66%, which is lower than the category average of 0.96.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Franklin Utilities Fund seeks capital appreciation and current income. FKUTX invests at least 80% of its net assets in securities of public utilities. Franklin Utilities Fund invests more than 25% of its total assets in companies operating in the utilities industry. The manager expects more than 50% of the fund's assets to be invested in electric utilities securities.

FKUTX’s 3-year and 5-year annualized returns are 8.4% and 6.3%, respectively. Franklin Utilities Fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.71%, which is lower that its category average of 0.95%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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