Back to top

Image: Bigstock

5 Utility Mutual Funds to Beat Niggling Trade War Fears

Read MoreHide Full Article

All the major indexes slumped significantly on Apr 6, with the Dow falling as much as 572 points on the day. This decline came after markets encountered new shockwaves late on Thursday when President Donald Trump announced a new set of $100 billion worth of tariffs against China. Renewed fears of a trade war may find investors scurrying toward safe-haven sectors, which emerged as the investments of choice.

One of the most popular safe-haven sectors is utilities. This sector comprises of companies that provide telephone, gas, water and electricity services. In this context, investors looking for stable dividend and interest income can opt to invest in mutual funds having significant exposure in utilities stocks.

Tariffs on China May Add Up to $153 Billion

Last Thursday night, the President called China’s decision an “unfair retaliation,” and instructed the United States Trade Representative (USTR) to decide whether new tariffs of $100 billion should be imposed on Chinese goods. Trump added that these additional tariffs will be suitable per Section 301 of the Trade Act of 1974 and that the products will be selected accordingly.

Earlier, the White House had announced new tariffs of $50 billion on more than 1,300 new Chinese products. Tariffs of 25% will be imposed on products ranging from aircraft batteries and parts to medical devices and flat-screen televisions. U.S.-China tensions started when Trump announced tariffs of around $3 billion on steel and aluminum imports from China in March. Total U.S. tariffs on China now add up to around $153 billion. Following the United States’ tariff announcements, China also retaliated with similar moves.

China “Not Afraid” Of Trade War

China is clearly in no mood to sit back when the United States is gearing up to impose new tariffs on its imports. In fact, a spokesperson for China’s Ministry of Commerce said that the country does not want to enter into a trade war with the United States. At the same time, China is “not afraid to fight a trade war.” He added that in case the United States sticks to its “protectionist trade practices,” China will not refrain from fighting back and instead will respond with “new comprehensive measures.”

Most recently, China declared that it will levy tariffs on around 106 U.S. products including soybeans, aircraft, chemicals and automobiles, with a total trading value of over $50 billion. Following the announcement of Trump’s steel and aluminum tariffs, China imposed tariffs of $3 billion on 128 American goods, with 15% duty levied on 120 products and 25% duty on other eight goods.

Buy These 5 Utilities Mutual Funds

The trade war conundrum will definitely affect the U.S. economy as the exports to China were significant at $130 billion in 2017. Following this development, investors shifted their attention toward safe-haven investments like utilities mutual funds. This is borne out by the fact that Utilities Select Sector SPDR Fund (XLU) has gained 2.3% in the last one month, emerging as the only S&P 500 sector to end in the green. Additionally, mutual funds related to this sector registered returns of 2.4% during the same period.

Banking on this encouraging backdrop, we have selected five utilities mutual funds that flaunt a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging one-year annualized returns. These also have minimum initial investment within $5000 and low expense ratios.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

Fidelity Telecom and Utilities (FIUIX - Free Report) seeks returns through growth of capital and income. FIUIX generally invests a major portion of its assets in securities of companies from both telecom and utilities. The fund invests not only in U.S. companies, but also in non-U.S. companies. FIUIX is a non-diversified fund.

FIUIX has encouraging one-year annualized returnsof 5%, and an expense ratio of 0.54% compared with the category average of 1.21%. The fund has a Zacks Mutual Fund Rank #2.

Prudential Jennison Utility A (PRUAX - Free Report) seeks returns through growth of capital and income. PRUAX invests a huge chunk of its investable assets in equity securities and investment-grade debt securities of utility services providers.

PRUAX has encouraging one-year annualized returnsof 2.8%, and an expense ratio of 0.83% compared with the category average of 1.21%. The fund has a Zacks Mutual Fund Rank #2.

AllianzGI Global Water A (AWTAX - Free Report) invests a bulk of its assets in common stocks of company, which are included in one or more key indexes like the S-Network Global Water Index (Composite), the NASDAQ OMX US Water Index, the S&P Global Water Index and the Global Water Index. The fund seeks capital growth for the long run by investing in companies involved in water-linked       activities.

AWTAX has encouraging one-year annualized returnsof 10.9%, and an expense ratio of 1.33% compared with the category average of 1.40%. The fund has a Zacks Mutual Fund Rank #1.

Wells Fargo Utility and Telecommunications A (EVUAX - Free Report) invests heavily in common and preferred stocks and investment-grade debt securities of utilities and telecom service providers. EVUAX also invests around 35% of its assets in convertible debentures of utilities and telecom companies. This non-diversified fund seeks returns through growth of income and capital.

EVUAX has encouraging one-year annualized returnsof 4%, and an expense ratio of 1.14% compared with the category average of 1.21%. The fund has a Zacks Mutual Fund Rank #2.

Fidelity Select Utilities Growth (FSUTX - Free Report) normally invests a large chunk of its assets in common stocks of companies mainly involved in the utilities sector and companies that generate the majority of their revenue from multiple utilities operations. FSUTX seeks growth of capital. FSUTX invests in both U.S. and non-U.S. companies.

FSUTX has encouraging one-year annualized returnsof 10.6%, and an expense ratio of 0.78% compared with the category average of 1.21%. The fund 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 >>