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3 Solid Funds to Buy Amid Continued Market Volatility

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Markets remained volatile last week as President Joe Biden and Republicans continued their discussion to reach a deal for raising the government debt ceiling. In fact, the volatility has been persisting for quite some time which has seen all three major indexes making wild swings almost throughout May.

Markets have been gripped by fears of an impending recession by the end of this year. The Fed has been aggressively hiking interest rates to tame soaring inflation, while market participants are unable to gauge the central bank’s future course of action.

Inflation, which has occasionally shown signs of easing, once again came in hotter than expectations in April, according to the latest data. Given this situation, it would thus be wise to invest in defensive funds like utilities such as Franklin Utilities Fund Class A1 (FKUTX - Free Report) , Fidelity Advisor Utilities Fund (FUGIX - Free Report) and Fidelity Select Utilities Growth Portfolio (FSUTX - Free Report) .

Inflation Jumps Again

According to the latest data released by the Commerce Department on May 26, the personal consumption expenditure (PCE) index advanced 0.4% in April, following a rise of 0.1% in March. Also, the PCE index rose 4.4% on a year-over-year basis in April after climbing 4.2% in March.

Core PCE, which excludes the volatile energy and food costs, jumped 0.4% in April on a month-over-month basis. Year over year, core PCE increased 4.7% in April.

The fresh inflation data comes just days before the Fed officials go for their June policy meeting. Investors have been expecting the Fed to put a pause on its interest rate hikes after inflation data in March showed signs of easing.

However, this may not be the case as the fresh data might compel the Fed to continue hiking interest rates for a longer period than expected earlier.

The Fed increased interest rates by 25 basis points in May to a range of 5-5.25%. The central bank has now increased interest rates for the 10th consecutive time.

While the Fed is now faced with the challenge of whether to continue hiking interest rates or put a pause, investors are unable to gauge the Fed’s plans. Higher interest rates will make borrowing expensive, escalating fears of the economy slipping into a recession.

Investing in utility funds would thus be prudent at this point in time. Given that demand for these services is often resistant to changes in the economic cycle, the utilities sector is fundamentally sound and mature. These companies provide necessary services that are always in demand, such as telecommunications, energy, gas and water.

This means that adding companies from the utility basket often increases a portfolio's resilience in a tumultuous market situation. The utilities sector is also known for its consistency and transparency of its profitability and cash flows. 

3 Best Choices

We have selected three mutual funds with significant exposure to the utilities sector. The funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) and are poised to gain from the above factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

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 fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also the likely future success of the fund.

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).

Franklin Utilities Fund Class A1 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. FKUTX advisors also invest a relatively small portion of their assets in companies operating in the utility industry.

Franklin Utilities Fund Class A1has a history of positive total returns for more than 10 years. Specifically, FKUTX has returned nearly 10.1% and 9.3% over the past three and five-year periods, respectively. Franklin Utilities Fund Class A1has a Zacks Mutual Fund Rank #1 (Strong Buy).

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

Fidelity Advisor Utilities Fund seeks capital appreciation by investing most of its assets in securities of companies deriving a majority of their revenues from their utility operations. FUGIX advisors choose to invest in securities of foreign and domestic issuers.

Fidelity Advisor Utilities Fund has a history of positive total returns for more than 10 years. Specifically, FUGIX has returned nearly 12.5% and 9.3% over the past three and five-year periods, respectively. Fidelity Advisor Utilities 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.

Fidelity Select Utilities Growth Portfolio fund seeks capital appreciation by investing most of its net assets in securities of domestic and foreign companies engaged in the Utility business and earning the majority of their revenues from utility operations. FSUTX advisors use a fundamental approach like financial condition, industry position, as well as market and economic conditions to select investments.

Fidelity Select Utilities Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSUTX has returned nearly 12.6% and 9.6% over the past three and five-year periods, respectively. Fidelity Select Utilities Portfolio fund 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.

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