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3 Utilities Mutual Fund Buys as AI Drives Power Demand
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For much of the past decade, utility mutual funds were considered safe havens, attracting investors primarily during periods of market uncertainty. In recent months, however, the sector has been making headlines for an entirely different reason. Wall Street has increasingly embraced utilities as a key beneficiary of the artificial intelligence (AI) revolution, as soaring electricity demand from data centers transforms the industry's long-term growth outlook.
The rapid expansion of AI infrastructure has fueled an unprecedented need for reliable power. Technology companies are investing billions of dollars to build and expand data centers capable of supporting increasingly complex AI workloads, creating strong demand for electricity generation, transmission and grid modernization. This structural shift has prompted investors to view utilities not merely as defensive holdings but as companies positioned to benefit from a multi-year investment cycle tied to AI adoption.
Another factor supporting utility mutual funds is the sector's combination of stable earnings and attractive dividend income. Even as investors seek exposure to high-growth themes, utilities continue to offer relatively predictable cash flows, making them appealing during periods of market volatility. Expectations that interest rates could gradually ease over time have also improved the outlook for capital-intensive utility companies by potentially lowering borrowing costs and supporting future infrastructure investments.
The growing emphasis on electrification is adding another layer of optimism. Rising electricity consumption from electric vehicles, advanced manufacturing and digital infrastructure is reinforcing expectations that power demand will remain elevated well beyond the current AI boom. Many utilities are responding by expanding generation capacity, upgrading transmission networks and investing in renewable energy projects to meet future demand.
As a result, utility mutual funds have emerged as one of Wall Street's most closely watched investment themes in recent months. The State Street Utilities Select Sector SPDR ETF (XLU) has emerged as a key barometer. As of July 13, XLU has gained roughly 8.6% year to date, clearly outperforming a volatile broader market. Once regarded mainly as a source of stability, the sector is increasingly being viewed as a growth opportunity, reflecting how the AI revolution is reshaping investment strategies far beyond the technology industry itself.
In this environment, utility mutual funds provide 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.
American Century Utilities (BULIX - Free Report) primarily invests in equity securities of companies within the utilities industry. Portfolio managers combine quantitative and qualitative research with risk management, using growth and valuation metrics to identify and rank attractive investment opportunities.
Mattia Bacciardi has been the lead manager of BULIX since May 2025. Three top holdings of BULIX are NextEra Energy (10.6%), Duke Energy (5.7%) and American Electric Power (5.5%).
BULIX’s 3-year and 5-year annualized returns are 15.7% and 8.5%, respectively. Its net expense ratio is 0.66%. BULIX 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.
Fidelity Select Utilities (FSUTX - Free Report) primarily invests in common stocks of companies engaged in the utilities industry, including domestic and foreign issuers. It relies on fundamental analysis of financial strength, industry position and economic conditions to select holdings and operates as a non-diversified fund.
Pranay Kirpalani has been the lead manager of FSUTX since December 2024. Three top holdings of FSUTX are NextEra Energy (13.6%), Constellation Energy (8.3%) and NRG Energy (7.3%).
FSUTX’s 3-year and 5-year annualized returns are 17.5% and 13%, respectively. Its net expense ratio is 0.63%. FSUTX has a Zacks Mutual Fund Rank #1.
Franklin Utilities (FKUTX - Free Report) typically invests the majority of its net assets in public utilities and related service providers, focusing on companies delivering electricity, natural gas, water and communications. Part of its assets is concentrated in the utilities industry. It invests mainly in equity securities, primarily common stocks.
John Kohli has been the lead manager of FKUTX since September 2018. Three top holdings of FKUTX are NextEra Energy (10%), Entergy (6%) and Sempra (5%).
FKUTX’s 3-year and 5-year annualized returns are 16.7% and 11.1%, respectively. Its net expense ratio is 0.70%. FKUTX has a Zacks Mutual Fund Rank #2.
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3 Utilities Mutual Fund Buys as AI Drives Power Demand
For much of the past decade, utility mutual funds were considered safe havens, attracting investors primarily during periods of market uncertainty. In recent months, however, the sector has been making headlines for an entirely different reason. Wall Street has increasingly embraced utilities as a key beneficiary of the artificial intelligence (AI) revolution, as soaring electricity demand from data centers transforms the industry's long-term growth outlook.
The rapid expansion of AI infrastructure has fueled an unprecedented need for reliable power. Technology companies are investing billions of dollars to build and expand data centers capable of supporting increasingly complex AI workloads, creating strong demand for electricity generation, transmission and grid modernization. This structural shift has prompted investors to view utilities not merely as defensive holdings but as companies positioned to benefit from a multi-year investment cycle tied to AI adoption.
Another factor supporting utility mutual funds is the sector's combination of stable earnings and attractive dividend income. Even as investors seek exposure to high-growth themes, utilities continue to offer relatively predictable cash flows, making them appealing during periods of market volatility. Expectations that interest rates could gradually ease over time have also improved the outlook for capital-intensive utility companies by potentially lowering borrowing costs and supporting future infrastructure investments.
The growing emphasis on electrification is adding another layer of optimism. Rising electricity consumption from electric vehicles, advanced manufacturing and digital infrastructure is reinforcing expectations that power demand will remain elevated well beyond the current AI boom. Many utilities are responding by expanding generation capacity, upgrading transmission networks and investing in renewable energy projects to meet future demand.
As a result, utility mutual funds have emerged as one of Wall Street's most closely watched investment themes in recent months. The State Street Utilities Select Sector SPDR ETF (XLU) has emerged as a key barometer. As of July 13, XLU has gained roughly 8.6% year to date, clearly outperforming a volatile broader market. Once regarded mainly as a source of stability, the sector is increasingly being viewed as a growth opportunity, reflecting how the AI revolution is reshaping investment strategies far beyond the technology industry itself.
In this environment, utility mutual funds provide 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.
American Century Utilities (BULIX - Free Report) primarily invests in equity securities of companies within the utilities industry. Portfolio managers combine quantitative and qualitative research with risk management, using growth and valuation metrics to identify and rank attractive investment opportunities.
Mattia Bacciardi has been the lead manager of BULIX since May 2025. Three top holdings of BULIX are NextEra Energy (10.6%), Duke Energy (5.7%) and American Electric Power (5.5%).
BULIX’s 3-year and 5-year annualized returns are 15.7% and 8.5%, respectively. Its net expense ratio is 0.66%. BULIX 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.
Fidelity Select Utilities (FSUTX - Free Report) primarily invests in common stocks of companies engaged in the utilities industry, including domestic and foreign issuers. It relies on fundamental analysis of financial strength, industry position and economic conditions to select holdings and operates as a non-diversified fund.
Pranay Kirpalani has been the lead manager of FSUTX since December 2024. Three top holdings of FSUTX are NextEra Energy (13.6%), Constellation Energy (8.3%) and NRG Energy (7.3%).
FSUTX’s 3-year and 5-year annualized returns are 17.5% and 13%, respectively. Its net expense ratio is 0.63%. FSUTX has a Zacks Mutual Fund Rank #1.
Franklin Utilities (FKUTX - Free Report) typically invests the majority of its net assets in public utilities and related service providers, focusing on companies delivering electricity, natural gas, water and communications. Part of its assets is concentrated in the utilities industry. It invests mainly in equity securities, primarily common stocks.
John Kohli has been the lead manager of FKUTX since September 2018. Three top holdings of FKUTX are NextEra Energy (10%), Entergy (6%) and Sempra (5%).
FKUTX’s 3-year and 5-year annualized returns are 16.7% and 11.1%, respectively. Its net expense ratio is 0.70%. FKUTX 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 >>