The U.S. utilities sector has emerged as a steady outperformer in 2025, continuing a strong run over the past 12 months. Traditionally viewed as a defensive segment due to its consistent demand, this sector has benefited from a unique blend of political stability, regulatory support and macroeconomic dynamics that have elevated investor interest and operational performance.

One of the primary drivers of the utilities sector’s growth has been the Fed’s dovish shift in monetary policy. Following the rapid interest rate hikes of 2022 and 2023 to combat inflation, the Fed began pivoting in late 2024. As inflation cooled and economic data showed signs of moderation, rate cuts resumed, with some more expected by the end of 2025. This environment of declining yields has made dividend-paying utility stocks more attractive to investors seeking income.

Government policy has also played a vital role. The previous administration’s continued push for clean energy investments through programs backed by the Inflation Reduction Act (IRA) has funneled billions into power grid modernization, renewable energy projects and carbon reduction initiatives. The Trump administration’s tariff war with its trading partners has also inadvertently helped the sector, with investors flocking to its defensive shelter.

Meanwhile, macroeconomic resilience has ensured steady electricity demand. Despite some softness in manufacturing and exports, domestic consumption has remained strong, with commercial and residential electricity use continuing to climb. Heatwaves and extreme weather events linked to climate change have further boosted demand for energy, particularly in regions reliant on air conditioning. Utilities have responded by improving reliability and resilience, winning customer trust and regulatory goodwill. As a result, the S&P 500 Utilities Select Sector SPDR (XLU) has advanced 15.7% year to date as of Aug. 5, and by 22% over the last 12 months.

Overall, a combination of falling interest rates, strong federal support for energy transition, political consistency and steady demand has created a favorable ecosystem for utilities in 2025. The sector’s reputation for reliability, paired with new growth avenues in green energy, has allowed it not only to weather economic fluctuations but to thrive.

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.

Cohen & Steers Global Infrastructure (CSUAX Quick QuoteCSUAX - Free Report) primarily invests in U.S. and foreign common stocks and other equity securities issued by infrastructure companies, which consist mainly of utilities, pipelines, toll roads, airports, railroads, marine ports and telecommunications.

Thuy Quynh Dang has been the lead manager of CSUAX since January 2022. Three top holdings for CSUAX are 4.9% in NextEra Energy, 4.6% in TC Energy and 4.3% in Union Pacific.

CSUAX’s 3-year and 5-year annualized returns are 6.8% and 8.4%, respectively. Its net expense ratio is 1.22%. CSUAX 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.

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.

Mattia Bacciardi has been the lead manager of BULIX since May 2025. Three top holdings for BULIX are 9.7% in NextEra Energy, 8.6% in Duke Energy and 6% in American Electric Power.

BULIX’s 3-year and 5-year annualized returns are 9% and 9.8%, 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 12.9% and 14.3%, respectively. Its net expense ratio is 0.66%. FSUTX has a Zacks Mutual Fund Rank #2.

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