Over the past couple of months, investors have been reeling from the uncertainty brought about by the Trump administration’s trade policies. On April 2, Donald announced a two-step tariff approach by imposing a baseline tariff rate of 10% on certain countries that took effect on April 5. Over the next few weeks, further tariffs were announced against trading partners, urging them to come to the table and sign a deal. Stock futures fell after these announcements and talks of an impending economic slowdown started taking centerstage.

The United States’ subsequent agreements with China, the U.K. and other countries have calmed investor somewhat, but the general feeling is that President Trump’s moves are so unpredictable that they cannot be priced in in advance. Markets are likely to remain volatile for some time.

The utilities sector generally serves as a fallback option for investors during market volatility, primarily because it is defensive in nature. Even during the 2008 global economic crisis, it held the fort. After the subprime crisis, the Fed cut interest rates to stimulate the economy, and investors flocked to utilities. Whatever the state of the economy, a household or business needs its electricity, water, or gas supplies.

Over the next five years, electricity demand in the United States is expected to grow by almost 16%, per Grid Strategies. This is big news for an industry that has seen power consumption increase less than 1% annually over the past 20 years.     

Having grown 23.3% in 2024, the S&P 500 Utilities Select Sector SPDR (XLU) is already off to a good start in 2025, advancing 5.5% year to date as of May 14. Growth has been driven primarily by the optimism around artificial intelligence (AI) and the energy needed to power it. While nuclear energy and other alternative forms of energy have investors’ attention, a key driver of the sector has been the upward momentum in electric demand in the United States.  

Because of steady demand and regulated pricing structures, utilities typically have consistent and predictable revenue streams, which investors value during uncertain times. Also, the sector is known for paying reliable dividends, often at higher yields than other sectors. During market volatility, this income can help cushion overall portfolio losses and attract income-focused investors. Hence, astute investors should consider such stocks at present.

In this environment, utility mutual funds provide much-needed stability and growth potential. 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, and carry a low expense ratio.

Meeder Conservative Allocation Retail (FLRUX Quick QuoteFLRUX - Free Report) primarily invests in common and preferred stocks, as well as fixed income securities. FLRUX also invests in underlying funds, which include domestic and foreign mutual funds, as well as in exchange-traded funds (ETFs), closed-end funds and unit investment trusts.

Aneep Maniar has been the lead manager of FLRUX since September 2023. Three top holdings for FLRUX are 16.1% in Fidelity Total Bond, 16% in Baird Core Plus Bond and 7% in Dodge & Cox.

FLRUX’s 3-year and 5-year annualized returns are 3.9% and 4.1%, respectively. Its net expense ratio is 1.23%. FLRUX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

American Century Utilities (BULIX Quick QuoteBULIX - Free Report) primarily invests in equity securities of companies engaged in the utilities industry. BULIX advisors use quantitative and qualitative management techniques as well as risk controls to construct the fund's portfolio.

Yulin Long has been the lead manager of BULIX since December 2010. Three top holdings for BULIX are 10% in NextEra Energy, 8.6% in Duke Energy and 5.6% in Dominion Energy.

BULIX’s 3-year and 5-year annualized returns are 6.6% and 8.5%, respectively. Its net expense ratio is 0.65%. BULIX has a Zacks Mutual Fund Rank #2.

Fidelity Select Utilities (FSUTX Quick QuoteFSUTX - Free Report) seeks capital appreciation and current income by investing the majority of its net assets in utilities and companies earning revenues from utility operations. FSUTX advisors use fundamental analysis of each issuer's financial condition and industry position, as well as market and economic conditions, to arrive at their investment decisions.

Pranay Kirpalani has been the lead manager of FSUTX since December 2024. Three top holdings for FSUTX are 9.3% in NextEra Energy, 9.1% in Duke Energy and 6% in Exelon.

FSUTX’s 3-year and 5-year annualized returns are 10.6% and 13.5%, respectively. Its net expense ratio is 0.66%. FSUTX has a Zacks Mutual Fund Rank #1.

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