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Buy These 4 Mutual Funds to Protect Against Market Upheaval
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Bears of Wall Street are again weighing on investor sentiment. The collapse of Silicon Valley Bank (SBV), followed by Signature Bank, is the biggest failure of U.S. banks since the financial crisis in 2008. This has spread panic across the startup and venture capital community across the world and the federal government had to step in to contain the damage.
The concern of high inflation, due to which the indices have crumbled since late 2021, has passed. The question now is whether the Federal Reserve has overstepped with its aggressive rate hike stances. The Dow, the S&P 500, and the Nasdaq has posted a negative return of 5.41%, 4.85%, and 3.56%, respectively, over the past month.
The Consumer Price Index (CPI) cooled off in the month of February and met market expectations. The inflation for the said month rose 0.4% in February and 6% from a year ago, mostly due to persistently higher costs for rent followed by food and energy prices. Unexpectedly, the Producers Price Index fell 0.1% in February. Along with this, retail sales declined 0.4%. These could influence the Fed’s next move on interest rates.
Persistent inflation forced the central bank to adopt the fastest monetary policy tightening cycle since the 1980s, yet prices are rising more than twice as fast as the Fed’s inflation expectation of 2%.
The Fed has increased its benchmark overnight interest rate by 450 basis points from the near-zero level to the current 4.50-4.75% range since last March. Markets expect a 25-basis point interest rate hike or temporary pause from 50 basis points after the labor market data suggested that monthly wage growth slowed and the unemployment rate rose. Higher interest rates affect businesses and consumers as it increases borrowing cost, which negatively impacts stock markets.
Also, many countries are facing high inflation mostly due to increased energy prices. The sanctions imposed on Russian oil and gas to protest its continuous war against Ukraine have created an enormous energy shortage.
Supply-chain disruption has pushed prices high, which in turn, will affect business profitability. Utility stocks in such times generally give reliable earnings due to the nature of their business. Demand for essential household services like electricity, natural gas, water distribution, and telecom remain inelastic even during a recession.
Thus, from an investment standpoint, we have selected four utility mutual funds that are expected to hedge your portfolio against volatile market conditions and gain attractive returns. 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).
These funds, by the way, have given impressive 3-year and 5-year returns as well, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or Rank 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio compared to the category average.
Fidelity Select Utilities Growth Portfolio (FSUTX - Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in the utility industry and companies deriving most of their revenues from their utility operations. FSUTX advisors choose to invest in stocks based on fundamental analysis factors such as the issuer's financial condition, industry position, as well as market and economic conditions.
Douglas Simmons has been the lead manager of FSUTX since Oct 2, 2006, and most of the fund’s holdings were in companies like Nextera Energy (15.38%), Southern Co (10.58%) and Sempra (6.95%) as of Nov 30, 2022.
FSUTX’s 3-year and 5-year returns are 6.5% and 9.7%, respectively. The annual expense ratio is 0.73% compared to the category average of 0.94%. FSUTX 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.
PGIM Jennison Utility Fund (PRUZX - Free Report) invests most of its assets, along with borrowings, if any, in equity and equity-related and investment-grade debt securities of utility companies. PRUZX fund is non-diversified.
Shaun Hong has been the lead manager of PRUZX since Sep 30, 2000, and most of the fund’s holdings were in companies like Nextera Energy (15.04%), Cheniere Energy (5.78%) and Constellation Energy (5.41%) as of Nov 30, 2022.
PRUZX’s 3-year and 5-year returns are 5.3% and 9.6%, respectively. The annual expense ratio of 0.55% is lower than the category average of 0.94%. PRUZX has a Zacks Mutual Fund Rank #2.
Franklin Utilities Fund (FRUAX - Free Report) invests most of its net assets in equity securities of public utility companies that provide electricity, natural gas, water, and communications services to the public and companies that provide services to public utility companies. FRUAX advisors also invest a relatively small portion of their assets in companies operating in the utility industry.
John Kohli has been the lead manager of FRUAX since Dec 31, 1998, and most of the fund’s holdings were in companies like Nextera Energy (11.78%), Southern Co (4.33%) and Dominion Energy (4.07%) as of Sep 30, 2022.
FRUAX’s 3-year and 5-year returns are 5.1% and 9.4%, respectively. The annual expense ratio is 0.57% compared to the category average of 0.94%. FRUAX has a Zacks Mutual Fund Rank #1.
Fidelity Telecom and Utilities Fund (FIUIX - Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in telecommunications services and utility companies. FIUIX advisors choose to invest in stocks based on fundamental analysis factors such as the issuer's financial condition, industry position, as well as market and economic conditions.
Douglas Simmons has been the lead manager of FIUIX since Sep 30, 2005, and most of the fund’s holdings were in companies like T-Mobile US (11.86%), Nextera Energy (10.37%) and AT&T (10.23%) as of Oct 31, 2022.
FIUIX’s 3-year and 5-year returns are 5.0% and 7.7%, respectively. The annual expense ratio is 0.69% compared to the category average of 0.94%. FIUIX has a Zacks Mutual Fund Rank #2.
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Buy These 4 Mutual Funds to Protect Against Market Upheaval
Bears of Wall Street are again weighing on investor sentiment. The collapse of Silicon Valley Bank (SBV), followed by Signature Bank, is the biggest failure of U.S. banks since the financial crisis in 2008. This has spread panic across the startup and venture capital community across the world and the federal government had to step in to contain the damage.
The concern of high inflation, due to which the indices have crumbled since late 2021, has passed. The question now is whether the Federal Reserve has overstepped with its aggressive rate hike stances. The Dow, the S&P 500, and the Nasdaq has posted a negative return of 5.41%, 4.85%, and 3.56%, respectively, over the past month.
The Consumer Price Index (CPI) cooled off in the month of February and met market expectations. The inflation for the said month rose 0.4% in February and 6% from a year ago, mostly due to persistently higher costs for rent followed by food and energy prices. Unexpectedly, the Producers Price Index fell 0.1% in February. Along with this, retail sales declined 0.4%. These could influence the Fed’s next move on interest rates.
Persistent inflation forced the central bank to adopt the fastest monetary policy tightening cycle since the 1980s, yet prices are rising more than twice as fast as the Fed’s inflation expectation of 2%.
The Fed has increased its benchmark overnight interest rate by 450 basis points from the near-zero level to the current 4.50-4.75% range since last March. Markets expect a 25-basis point interest rate hike or temporary pause from 50 basis points after the labor market data suggested that monthly wage growth slowed and the unemployment rate rose. Higher interest rates affect businesses and consumers as it increases borrowing cost, which negatively impacts stock markets.
Also, many countries are facing high inflation mostly due to increased energy prices. The sanctions imposed on Russian oil and gas to protest its continuous war against Ukraine have created an enormous energy shortage.
Supply-chain disruption has pushed prices high, which in turn, will affect business profitability. Utility stocks in such times generally give reliable earnings due to the nature of their business. Demand for essential household services like electricity, natural gas, water distribution, and telecom remain inelastic even during a recession.
Thus, from an investment standpoint, we have selected four utility mutual funds that are expected to hedge your portfolio against volatile market conditions and gain attractive returns. 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).
These funds, by the way, have given impressive 3-year and 5-year returns as well, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or Rank 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio compared to the category average.
Fidelity Select Utilities Growth Portfolio (FSUTX - Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in the utility industry and companies deriving most of their revenues from their utility operations. FSUTX advisors choose to invest in stocks based on fundamental analysis factors such as the issuer's financial condition, industry position, as well as market and economic conditions.
Douglas Simmons has been the lead manager of FSUTX since Oct 2, 2006, and most of the fund’s holdings were in companies like Nextera Energy (15.38%), Southern Co (10.58%) and Sempra (6.95%) as of Nov 30, 2022.
FSUTX’s 3-year and 5-year returns are 6.5% and 9.7%, respectively. The annual expense ratio is 0.73% compared to the category average of 0.94%. FSUTX 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.
PGIM Jennison Utility Fund (PRUZX - Free Report) invests most of its assets, along with borrowings, if any, in equity and equity-related and investment-grade debt securities of utility companies. PRUZX fund is non-diversified.
Shaun Hong has been the lead manager of PRUZX since Sep 30, 2000, and most of the fund’s holdings were in companies like Nextera Energy (15.04%), Cheniere Energy (5.78%) and Constellation Energy (5.41%) as of Nov 30, 2022.
PRUZX’s 3-year and 5-year returns are 5.3% and 9.6%, respectively. The annual expense ratio of 0.55% is lower than the category average of 0.94%. PRUZX has a Zacks Mutual Fund Rank #2.
Franklin Utilities Fund (FRUAX - Free Report) invests most of its net assets in equity securities of public utility companies that provide electricity, natural gas, water, and communications services to the public and companies that provide services to public utility companies. FRUAX advisors also invest a relatively small portion of their assets in companies operating in the utility industry.
John Kohli has been the lead manager of FRUAX since Dec 31, 1998, and most of the fund’s holdings were in companies like Nextera Energy (11.78%), Southern Co (4.33%) and Dominion Energy (4.07%) as of Sep 30, 2022.
FRUAX’s 3-year and 5-year returns are 5.1% and 9.4%, respectively. The annual expense ratio is 0.57% compared to the category average of 0.94%. FRUAX has a Zacks Mutual Fund Rank #1.
Fidelity Telecom and Utilities Fund (FIUIX - Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in telecommunications services and utility companies. FIUIX advisors choose to invest in stocks based on fundamental analysis factors such as the issuer's financial condition, industry position, as well as market and economic conditions.
Douglas Simmons has been the lead manager of FIUIX since Sep 30, 2005, and most of the fund’s holdings were in companies like T-Mobile US (11.86%), Nextera Energy (10.37%) and AT&T (10.23%) as of Oct 31, 2022.
FIUIX’s 3-year and 5-year returns are 5.0% and 7.7%, respectively. The annual expense ratio is 0.69% compared to the category average of 0.94%. FIUIX has a Zacks Mutual Fund Rank #2.
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>