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Missile Fears Lurking: Seek Refuge in 5 Utility Mutual Funds
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North Korea fired a ballistic missile, over Japan on Aug 29 which crashed without causing harm in the Pacific Ocean. Regardless, Japan Prime Minister Shinzo Abe termed North Korea’s action as a grave and careless threat to the country. Following this development, Asian shares plummeted and U.S. futures moved southward.
The sell-off that followed had investors scurrying for safe-haven sectors, which emerged as the investments of choice. One of the more popular safe-haven sectors is utilities. This sector comprises of companies that provide telephone, gas, water and electricity services. In this context, investors looking for stable dividend and interest income can opt to invest in utilities mutual funds.
North Korea’s Missile Launch Rattle Market
Prime Minister Shinzo Abe said North Korea’s missile launch represented an “unprecedented, serious and grave threat” to Japan. He added that during a 40-minute long telephonic conversation, President Trump had told him that the U.S. will stand “with Japan 100%." Subsequently, while speaking about the missile launch President Trump stated that "all options are on the table."
Following the news of the missile launch, investors shifted their focus to safe-haven investments which weighed on Asian equity markets. Japan’s benchmark Nikkei 225 index fell 0.5% or 87.35 points, to close at 19,362.55 on Aug 29. Meanwhile, U.S. stock futures traded lower, with Dow Jones Industrial Average futures losing more than 100 points in premarket trading. Ultimately, of course all the key indexes managed to end in the green at the close, shrugging off early blues. But the specter of a North Korea centric conflict remains.
Why Buy Utilities Funds?
In the safe-haven sectors, utilities could be good investments as these produce solid income for their investors. Traditionally, this segment offers protection against a downward trending market, or when there is world strife that will impact the economy globally.
Investors with a conservative mindset looking for stable current income would do well to consider utility funds. They are used as defensive instruments, which protect investments during a market downturn. This is because demand for essential services such as those provided by utilities remains unchanged even during difficult times.
Moreover, most of the utilities maintain a high level of monopoly across their geographic markets. This in turn helps these companies retain their profitability and continued existence. Constant demand for utilities-related services ensures long-term sustainability for utilities mutual funds.
Buy These 5 Utilities Mutual Funds
As discussed above, recent geopolitical tensions shifted investors’ attention toward safe-haven investments like utilities mutual funds. This is borne out by the fact that Utilities Select Sector SPDR Fund (XLU) has gained 6.5% in the last six months, emerging as the second best-performing sector among the S&P 500 sectors. XLU’s performance was also better than the S&P 500’s increase of 2.7% during the same period.
Additionally, mutual funds related to this sector registered strong returns recently. According to Morningstar, utilities mutual funds have registered three-month and year-to-date (YTD) returns of 4.1% and 14.7%, respectively.
Banking on this encouraging backdrop, we have selected five utilities mutual funds that flaunt a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging YTD returns. These also have minimum initial investment within $5000 and low expense ratios.
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 of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Fidelity Select Utilities Growth (FSUTX - Free Report) normally invests the lion’s share of assets in common stocks of companies mainly involved in the utilities sector and companies that generate a bulk of their revenue from multiple utilities operations. FSUTX seeks growth of capital. FSUTX invests both in U.S. and non-U.S. companies.
FSUTX has YTD returns of 20%, and an expense ratio of 0.78% compared with the category average of 1.25%. The fund has a Zacks Mutual Fund Rank #1.
American Century Utilities Fund Investor (BULIX - Free Report) invests a major portion of its assets in equity securities of companies engaged in the utilities sector. BULIX seeks appreciation of income and capital for the long run. The fund managers generally use qualitative and quantitative management techniques.
BULIX has YTD returns of 4%, and an expense ratio of 0.67% compared with the category average of 1.25%. The fund has a Zacks Mutual Fund Rank #2.
Wells Fargo Utility and Telecommunications A (EVUAX - Free Report) invests heavily in common and preferred stocks and investment-grade debt securities of utilities and telecom companies. EVUAX also invests around 35% of its assets in convertible debentures of utilities and telecom companies. This non-diversified fund seeks returns through growth of income and capital.
EVUAX has YTD returns of 15.4%, and an expense ratio of 1.14% compared with the category average of 1.25%. The fund has a Zacks Mutual Fund Rank #2.
Franklin Utilities C (FRUSX - Free Report) invests the lion’s share of its assets in the securities of public utilities companies, which are involved in providing water, natural gas, communication and electricity services. FRUSX seeks growth of capital and income. The fund invests at least one-fourth of its total assets in companies based in the utilities sector.
FRUSX has YTD returns of 13.8%, and an expense ratio of 1.23% compared with the category average of 1.25%. The fund has a Zacks Mutual Fund Rank #2.
Invesco Dividend Income A (IAUTX - Free Report) seeks current income as well as capital growth for the long run. IAUTX invests a large part of its assets in equity securities, which have high dividend-paying abilities. The fund also invests not more than one-fourth of its assets in foreign securities. IAUTX has strong holdings in utilities sector.
IAUTX has YTD returns of 3.7%, and an expense ratio of 1.03% compared with the category average of 1.07%. The fund has a Zacks Mutual Fund Rank #2.
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Missile Fears Lurking: Seek Refuge in 5 Utility Mutual Funds
North Korea fired a ballistic missile, over Japan on Aug 29 which crashed without causing harm in the Pacific Ocean. Regardless, Japan Prime Minister Shinzo Abe termed North Korea’s action as a grave and careless threat to the country. Following this development, Asian shares plummeted and U.S. futures moved southward.
The sell-off that followed had investors scurrying for safe-haven sectors, which emerged as the investments of choice. One of the more popular safe-haven sectors is utilities. This sector comprises of companies that provide telephone, gas, water and electricity services. In this context, investors looking for stable dividend and interest income can opt to invest in utilities mutual funds.
North Korea’s Missile Launch Rattle Market
Prime Minister Shinzo Abe said North Korea’s missile launch represented an “unprecedented, serious and grave threat” to Japan. He added that during a 40-minute long telephonic conversation, President Trump had told him that the U.S. will stand “with Japan 100%." Subsequently, while speaking about the missile launch President Trump stated that "all options are on the table."
Following the news of the missile launch, investors shifted their focus to safe-haven investments which weighed on Asian equity markets. Japan’s benchmark Nikkei 225 index fell 0.5% or 87.35 points, to close at 19,362.55 on Aug 29. Meanwhile, U.S. stock futures traded lower, with Dow Jones Industrial Average futures losing more than 100 points in premarket trading. Ultimately, of course all the key indexes managed to end in the green at the close, shrugging off early blues. But the specter of a North Korea centric conflict remains.
Why Buy Utilities Funds?
In the safe-haven sectors, utilities could be good investments as these produce solid income for their investors. Traditionally, this segment offers protection against a downward trending market, or when there is world strife that will impact the economy globally.
Investors with a conservative mindset looking for stable current income would do well to consider utility funds. They are used as defensive instruments, which protect investments during a market downturn. This is because demand for essential services such as those provided by utilities remains unchanged even during difficult times.
Moreover, most of the utilities maintain a high level of monopoly across their geographic markets. This in turn helps these companies retain their profitability and continued existence. Constant demand for utilities-related services ensures long-term sustainability for utilities mutual funds.
Buy These 5 Utilities Mutual Funds
As discussed above, recent geopolitical tensions shifted investors’ attention toward safe-haven investments like utilities mutual funds. This is borne out by the fact that Utilities Select Sector SPDR Fund (XLU) has gained 6.5% in the last six months, emerging as the second best-performing sector among the S&P 500 sectors. XLU’s performance was also better than the S&P 500’s increase of 2.7% during the same period.
Additionally, mutual funds related to this sector registered strong returns recently. According to Morningstar, utilities mutual funds have registered three-month and year-to-date (YTD) returns of 4.1% and 14.7%, respectively.
Banking on this encouraging backdrop, we have selected five utilities mutual funds that flaunt a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging YTD returns. These also have minimum initial investment within $5000 and low expense ratios.
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 of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Fidelity Select Utilities Growth (FSUTX - Free Report) normally invests the lion’s share of assets in common stocks of companies mainly involved in the utilities sector and companies that generate a bulk of their revenue from multiple utilities operations. FSUTX seeks growth of capital. FSUTX invests both in U.S. and non-U.S. companies.
FSUTX has YTD returns of 20%, and an expense ratio of 0.78% compared with the category average of 1.25%. The fund has a Zacks Mutual Fund Rank #1.
American Century Utilities Fund Investor (BULIX - Free Report) invests a major portion of its assets in equity securities of companies engaged in the utilities sector. BULIX seeks appreciation of income and capital for the long run. The fund managers generally use qualitative and quantitative management techniques.
BULIX has YTD returns of 4%, and an expense ratio of 0.67% compared with the category average of 1.25%. The fund has a Zacks Mutual Fund Rank #2.
Wells Fargo Utility and Telecommunications A (EVUAX - Free Report) invests heavily in common and preferred stocks and investment-grade debt securities of utilities and telecom companies. EVUAX also invests around 35% of its assets in convertible debentures of utilities and telecom companies. This non-diversified fund seeks returns through growth of income and capital.
EVUAX has YTD returns of 15.4%, and an expense ratio of 1.14% compared with the category average of 1.25%. The fund has a Zacks Mutual Fund Rank #2.
Franklin Utilities C (FRUSX - Free Report) invests the lion’s share of its assets in the securities of public utilities companies, which are involved in providing water, natural gas, communication and electricity services. FRUSX seeks growth of capital and income. The fund invests at least one-fourth of its total assets in companies based in the utilities sector.
FRUSX has YTD returns of 13.8%, and an expense ratio of 1.23% compared with the category average of 1.25%. The fund has a Zacks Mutual Fund Rank #2.
Invesco Dividend Income A (IAUTX - Free Report) seeks current income as well as capital growth for the long run. IAUTX invests a large part of its assets in equity securities, which have high dividend-paying abilities. The fund also invests not more than one-fourth of its assets in foreign securities. IAUTX has strong holdings in utilities sector.
IAUTX has YTD returns of 3.7%, and an expense ratio of 1.03% compared with the category average of 1.07%. The fund has a Zacks Mutual Fund Rank #2.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>