In 2025, the U.S. utilities sector has emerged as one of Wall Street’s strongest performers, buoyed by powerful structural drivers. The most significant factor has been the surge in electricity demand, fueled by the rapid expansion of data centers, artificial intelligence (AI) workloads, electric vehicles and domestic manufacturing. According to the U.S. Energy Information Administration, power consumption is expected to reach record highs in 2025 and 2026 as AI infrastructure and electrification continue to reshape energy usage.

This rising demand has transformed utilities from slow-growth, defensive businesses into critical elements of the modern economy. Companies are investing heavily in expanding and modernizing their grids, building new transmission lines, adding energy storage and accelerating the shift toward cleaner generation. Supportive government policies have added further momentum, with incentives from the Inflation Reduction Act and federal infrastructure initiatives helping fund modernization projects and streamline permitting processes.

For investors, the sector offers stability and growth potential. As interest rates show signs of easing, high-dividend utility stocks have become more attractive relative to bonds. Their regulated business models also provide a defensive cushion against broader market volatility.

Nonetheless, challenges remain. Utilities must navigate regulatory oversight, political scrutiny over rate hikes and the complexities of executing massive infrastructure projects amid rising capital costs. Even so, in 2025, the market has rewarded those utilities that have successfully positioned themselves at the crossroads of technological transformation, sustainable energy and dependable cash generation. As of Sept. 30, the S&P 500 Utilities Select Sector SPDR (XLU) advanced 17.7% year to date, marking a solid period of growth in the sector.

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.

Fidelity Telecom and Utilities (FIUIX Quick QuoteFIUIX - Free Report) primarily invests in common stocks, allocating most of its assets to telecommunications and utility companies, both domestic and foreign. It employs fundamental analysis and evaluates financial health, industry standing and market conditions to select investments. FIUIX is non-diversified.

Pranay Kirpalani has been the lead manager of FIUIX since December 2024. Three top holdings for FIUIX are 7.8% in Duke Energy, 5.7% in Exelon and 4.4% in PPL.

FIUIX’s 3-year and 5-year annualized returns are 13.9% and 13.1%, respectively. Its net expense ratio is 0.72%. FIUIX 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) focuses on equity investments in companies within the utilities sector. Its advisors employ a blend of quantitative and qualitative strategies, along with risk management measures, to build and maintain the fund’s portfolio.

Mattia Bacciardi has been the lead manager of BULIX since May 2025. Three top holdings for BULIX are 8.5% in NextEra Energy, 8.4% in Duke Energy and 6.9% in Vistra.

BULIX’s 3-year and 5-year annualized returns are 8% and 9.1%, respectively. Its net expense ratio is 0.65%. BULIX has a Zacks Mutual Fund Rank #2.

Fidelity Select Utilities (FSUTX Quick QuoteFSUTX - Free Report) primarily invests in common stocks, allocating the majority of its net assets to domestic and foreign utility companies. Using fundamental analysis of financial strength, industry position and market conditions, FSUTX advisors select investments and maintain a non-diversified portfolio.

Pranay Kirpalani has been the lead manager of FSUTX since December 2024. Three top holdings for FSUTX are 11.3% in NextEra Energy, 9% in Constellation Energy and 8.5% in Duke Energy.

FSUTX’s 3-year and 5-year annualized returns are 11% and 14.3%, respectively. Its net expense ratio is 0.66%. FSUTX has a Zacks Mutual Fund Rank #2.

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