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3 Utility Mutual Funds to Protect Against Market Volatility
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In this year of stock market blood bath, very few sectors other than energy, which grew rapidly on the supply-side crisis, have done well over a period of time. However, defensive stocks have been in demand because of their innate nature, which guards them against the vagaries of a market downturn. Even during the 2008 financial crisis, they stood out in the debris.
Utility mutual funds are examples of such defensive instruments, which protect investments during a market downturn. Demand for essential services is usually not affected 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.
Utilities are often considered long-term buy-and-hold options as they provide a regular dividend to shareholders. Also, dividend yields on utility stocks are usually higher than those paid by other equities.
Aside from energy and consumer staples, the utility sector has been the only other broad sector of the economy which has grown over the last year. As of November 2022, the Utilities Select Sector SPDR (XLU) had grown 11.8% in the last 12 months. These funds are also interest-rate sensitive, and with the Fed ending its streak of 75 bps hikes in the December meeting, opting for a lesser, 50 bps hike, it might act as an incentive for the sector.
The sector has also received policy attention from the U.S. government in recent times. Joe Biden has committed nearly $2 trillion in investment to achieve a 100% clean energy economy and net-zero greenhouse gas emissions by 2050. This includes $1.6 billion to help pay for clean energy and climate adaptation in developing countries, suggested in the omnibus spending bill for fiscal 2023 alone.
In summary, utility mutual funds provide much-required stability and growth potential in a market that is expected to remain volatile for a while. 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 as well as carry a low expense ratio. We have also made sure that at least 75% of the fund is invested in the utilities sector.
Fidelity Utilities Fund (FIUIX - Free Report) seeks high total return through current income generation and capital appreciation. FIUIX primarily invests in common stocks with at least 80% of assets in securities of utility companies. The fund invests in domestic and foreign issuers. The fund offers dividends quarterly in the month of March, June, September and December. Capital gains are offered twice a year, in March and December.
Douglas Simmons has been the lead manager of FIUIX since Sep 29, 2005, and 78.3% of the fund is currently invested in the utility sector. Three top holdings for FIUIX are 10.6% in Nextera Energy, 8.2% in The Southern Company and 6.7% in Sempra Energy.
FIUIX’s 3-year and 5-year annualized returns are 6.4% and 7.8%, respectively. Its net expense ratio is 0.69% compared to the category average of 0.94%. FIUIX 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.
Franklin Utilities Fund (FKUTX - Free Report) seeks capital appreciation and current income by investing the majority of its net assets in the securities of public utility companies. FKUTX invests mostly in equity securities, but may invest a small portion of its assets in debt securities. It offers dividends quarterly and capital gains, if any, annually.
John Kohli has been the lead manager of FKUTX since Dec 30, 1998, and 95.7% of the fund is currently invested in the utility sector. Three top holdings for FKUTX are 11.8% in Nextera Energy, 4.3% in The Southern Company and 4.2% in Sempra Energy.
FKUTX’s 3-year and 5-year annualized returns are 7.3% and 7.8%, respectively. Its net expense ratio is 0.72% compared to the category average of 0.94%. FKUTX has a Zacks Mutual Fund Rank #2.
American Century Utilities Fund (BULIX - Free Report) normally invests the majority of its net assets in equity securities of companies from the utilities sector. The portfolio managers use quantitative and qualitative management techniques as well as risk controls to construct BULIX’s portfolio. The process involves ranking stocks based on their growth and valuation characteristics.
Tsuyoshi Ozaki has been the lead manager of BULIX since Oct 31, 2017, and 89.9% of the fund is currently invested in the utility sector. Three top holdings for BULIX are 10.4% in Nextera Energy, 7.6% in The Southern Company and 7.4% in Duke Energy.
BULIX’s 3-year and 5-year annualized returns are 3.4% and 4.7%, respectively. Its net expense ratio is 0.65% compared to the category average of 0.94%. BULIX has a Zacks Mutual Fund Rank #2.
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3 Utility Mutual Funds to Protect Against Market Volatility
In this year of stock market blood bath, very few sectors other than energy, which grew rapidly on the supply-side crisis, have done well over a period of time. However, defensive stocks have been in demand because of their innate nature, which guards them against the vagaries of a market downturn. Even during the 2008 financial crisis, they stood out in the debris.
Utility mutual funds are examples of such defensive instruments, which protect investments during a market downturn. Demand for essential services is usually not affected 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.
Utilities are often considered long-term buy-and-hold options as they provide a regular dividend to shareholders. Also, dividend yields on utility stocks are usually higher than those paid by other equities.
Aside from energy and consumer staples, the utility sector has been the only other broad sector of the economy which has grown over the last year. As of November 2022, the Utilities Select Sector SPDR (XLU) had grown 11.8% in the last 12 months. These funds are also interest-rate sensitive, and with the Fed ending its streak of 75 bps hikes in the December meeting, opting for a lesser, 50 bps hike, it might act as an incentive for the sector.
The sector has also received policy attention from the U.S. government in recent times. Joe Biden has committed nearly $2 trillion in investment to achieve a 100% clean energy economy and net-zero greenhouse gas emissions by 2050. This includes $1.6 billion to help pay for clean energy and climate adaptation in developing countries, suggested in the omnibus spending bill for fiscal 2023 alone.
In summary, utility mutual funds provide much-required stability and growth potential in a market that is expected to remain volatile for a while. 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 as well as carry a low expense ratio. We have also made sure that at least 75% of the fund is invested in the utilities sector.
Fidelity Utilities Fund (FIUIX - Free Report) seeks high total return through current income generation and capital appreciation. FIUIX primarily invests in common stocks with at least 80% of assets in securities of utility companies. The fund invests in domestic and foreign issuers. The fund offers dividends quarterly in the month of March, June, September and December. Capital gains are offered twice a year, in March and December.
Douglas Simmons has been the lead manager of FIUIX since Sep 29, 2005, and 78.3% of the fund is currently invested in the utility sector. Three top holdings for FIUIX are 10.6% in Nextera Energy, 8.2% in The Southern Company and 6.7% in Sempra Energy.
FIUIX’s 3-year and 5-year annualized returns are 6.4% and 7.8%, respectively. Its net expense ratio is 0.69% compared to the category average of 0.94%. FIUIX 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.
Franklin Utilities Fund (FKUTX - Free Report) seeks capital appreciation and current income by investing the majority of its net assets in the securities of public utility companies. FKUTX invests mostly in equity securities, but may invest a small portion of its assets in debt securities. It offers dividends quarterly and capital gains, if any, annually.
John Kohli has been the lead manager of FKUTX since Dec 30, 1998, and 95.7% of the fund is currently invested in the utility sector. Three top holdings for FKUTX are 11.8% in Nextera Energy, 4.3% in The Southern Company and 4.2% in Sempra Energy.
FKUTX’s 3-year and 5-year annualized returns are 7.3% and 7.8%, respectively. Its net expense ratio is 0.72% compared to the category average of 0.94%. FKUTX has a Zacks Mutual Fund Rank #2.
American Century Utilities Fund (BULIX - Free Report) normally invests the majority of its net assets in equity securities of companies from the utilities sector. The portfolio managers use quantitative and qualitative management techniques as well as risk controls to construct BULIX’s portfolio. The process involves ranking stocks based on their growth and valuation characteristics.
Tsuyoshi Ozaki has been the lead manager of BULIX since Oct 31, 2017, and 89.9% of the fund is currently invested in the utility sector. Three top holdings for BULIX are 10.4% in Nextera Energy, 7.6% in The Southern Company and 7.4% in Duke Energy.
BULIX’s 3-year and 5-year annualized returns are 3.4% and 4.7%, respectively. Its net expense ratio is 0.65% compared to the category average of 0.94%. BULIX 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 >>