The Fed held short-term interest rates steady in June and indicated a slower approach toward hiking the cost of borrowing in the near future. It had raised the federal funds rate by 0.25 percentage points in December for the first time since 2006. Nevertheless, the Fed admitted that rates were kept unchanged for the time being due to a sharp drop in U.S. hiring in May, raising doubts about the strength of the economy.

A low level of business investment and inflation falling short of expectations also did little to help the Fed take a rate hike call. And then we have the looming Brexit risk, which also compelled the Fed to take a cautious stance. Yellen added that Britain’s possible exit from the European Union would have “consequences for economic and financial conditions in global financial markets.”

Such a low interest rate environment is a boon for the utility sector. This is because conventional wisdom says that if rates remain low then it would be good for utility stocks, as the cost of capital will decrease, profitability will increase and there will be a decline in demand for treasuries. Hence, the time is right to invest in mutual funds having significant exposure to such stocks.

Dismal Jobs Report

May’s discouraging jobs report kept the rate hike in check. The U.S. economy had added a meager 38,000 jobs in May, the weakest level of hiring in almost six years, according to the Labor department. In the past three months, the pace of hiring also slowed down to an average 116,000.

Moreover, the jobless rate declined to 4.7% in May, its lowest level since Nov 2007. However, this was mainly due to a number of people dropping out of the labor force and was therefore counted as unemployed, which isn’t an encouraging sign. The depressing jobs report invariably points to weakness in the economy that is bound to have its repercussion on consumer confidence. (Read: 4 Stocks to Gain from Weak Jobs Data)

 Weak Business Investment, Inflation Isn’t Upto the Mark

Flagging business investment also weighed on policy makers. While nonresidential fixed investment declined in the last two consecutive quarters, the first back-to-back quarterly decline since 2009, capital goods ordered by businesses excluding military goods and aircraft declined 0.8% in April. This is almost down 12% from its post-recession peak in 2014. Business investments play a significant role in determining business sentiment and their need for hiring more workers in the future. (Read: Weak Business Investment Weighs on Policy Makers)

Along with soft business investment, inflation remains below the 2% objective mostly due to the earlier decline in energy prices and prices of non-energy imports. The Fed's preferred inflation gauge, the Personal Consumption Expenditure Index, excluding food and energy, increased 1.6% year over year in April, according to the Bureau of Economic Analysis. (Read: Text of June FOMC statement)

“Brexit” Woes

Apart from domestic issues, economic events abroad also kept the central bank cautious. U.K’s membership in the European Union is becoming increasingly murky and the nation is yet to reach a resolution, which may spark fresh bouts of volatility in the global markets.

The risk of a “Brexit” has intensified after fresh polls. Last weekend, an opinion poll by Opinium showed that 52% of the Brits prefer to leave the world’s biggest single market, while 33% are in favor of not leaving. In an interview with the Observer on Sunday, British Prime Minister David Cameron had cautioned that a potential Brexit will adversely impact British spending on healthcare and such an exit will dry up about 40 billion pounds in U.K. public finances by 2020. (Read: 5 British Stocks to Watch as Brexit Vote Looms)

Buy These 4 Utility Mutual Funds as Go-Slow Approach Remains

Thanks to the aforementioned issues, the Fed kept interest rates unchanged this month. The Fed’s decision to stick with its 2016 rate path also appears to be on shaky ground with just six of the 17 policymakers forecasting one rate hike this year. Yellen added that “we are quite uncertain about where rates are heading in the longer term.” This is in sharp contrast to the rosier comments by top officials only a few months back.

The CME Group FedWatch probability for a July rate hike came in at 10%, down from 21% prior to the Fed’s announcement. Traders tracked by the CME now see about a 26%, 27% and 45% chance of a rate hike in September, November and December, respectively, all falling short of the 50% mark.

In a persistently low interest environment, companies that are part of the utility sector stand to benefit the most. Lower interest rates mean a decrease in cost of capital, a basic requirement of such companies. Utility companies are capital intensive since they require a continuous inflow of funds to carry on their operations and upgrade infrastructures. Lower interest rates or for that matter a decrease in the debt level will also have a positive impact on their credit ratings.

For these reasons, investing in utility mutual funds will be a judicious decision. Funds have been selected over stocks, since funds reduce transaction costs for investors. Funds also diversify their portfolio without the numerous commission charges that stocks need to bear. (Read: If You Seek a Stable Portfolio? Utilities Are a Must)

We have selected four such utility mutual funds that have a whopping year-to-date and 1-year return, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), offer a minimum initial investment within $2,500 and carry a low expense ratio.

American Century Utilities Investor (BULIX Quick QuoteBULIX - Free Report) invests the majority of its assets in equity securities of companies engaged in the utilities industry. BULIX’s year-to-date and 1-year returns are 18.2% and 18.9%, respectively. Annual expense ratio of 0.67% is lower than the category average of 1.15%. BULIX has a Zacks Mutual Fund Rank #1.

Fidelity Telecom and Utilities (FIUIX Quick QuoteFIUIX - Free Report) invests a large portion of its assets in securities of telecommunications services companies and utility companies. FIUIX’s year-to-date and 1-year returns are 15.2% and 8.1%, respectively. Annual expense ratio of 0.74% is lower than the category average of 1.15%. FIUIX has a Zacks Mutual Fund Rank #2.

Fidelity Advisor Utilities A (FUGAX Quick QuoteFUGAX - Free Report) invests a major portion of its assets in securities of companies deriving a majority of their revenues from their utility operations. FUGAX’s year-to-date and 1-year returns are 16.2% and 9.9%, respectively. Annual expense ratio of 1.11% is lower than the category average of 1.15%. FUGAX has a Zacks Mutual Fund Rank #2.

Invesco Dividend Income Y (IAUYX Quick QuoteIAUYX - Free Report) invests primarily in stocks of companies that generate, distribute natural gas or electricity, as well as in companies that provide telecommunications services. IAUYX’s year-to-date and 1-year returns are 9.3% and 12.2%, respectively. Annual expense ratio of 0.87% is lower than the category average of 1.10%. IAUYX has a Zacks Mutual Fund Rank #2.

About Zacks Mutual Fund Rank

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