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3 Utilities Funds to Shield Your Portfolio From Economic Woes

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The utilities sector outperformed the broader market in 2018. For the record, the Utilities Select Sector SPDR (XLU) gained 4.8% in the year. The period between February and December proved to be crucial for the sector as global economic and geopolitical worries, and developments in the White House resulted in a 20% rally.

Analysts expect this momentum to continue in 2019. As a matter of fact, Goldman Sachs (GS) estimates the sector to emerge as one of the best performers this year. Goldman Sachs’ Chief Equity Strategist David Kostin thinks equity investments will remain risky in 2019 as the margin of safety is very low due to an elevation in stock valuations, going by historical standards.

Moreover, per a projection from the U.S. Energy Information Administration (“EIA”), retail prices of electricity will continue to increase across all customer segments, which would boost utilities’ top-line growth. Under such circumstances, investors looking for stable dividend and interest income can opt to invest in mutual funds having significant exposure in utilities stocks.

IMF Predicts a Global Slowdown

On Jan 21, the International Monetary Fund (IMF) presented a rather gloomy projection for the global economy. The body has revised its global forecast for 2019 and 2020 down to 3.5% and 3.6%, respectively. The last time IMF made such a reduction was back in October, when the ongoing U.S.-China trade war was cited as a major issue.

The international lender stated that a slowdown in Europe and some emerging markets will likely result in a global economic downturn. Further, China’s economic woes and a “No Deal” Brexit were the two other factors that resulted in lackluster projections by the IMF. Per the latest data, China’s economy expanded 6.6% last year. This is the slowest pace of growth that China has witnessed since 1990.

3 Funds to Buy Now

The utilities sector in America is undergoing a period of transformation, which is being driven primarily by technological prowess and stiff market competition. Further, players in the electricity business are striving to serve its savvy customers by tapping new technologies every year. This is because such integration leads to increased operational efficiency as well as generation of a needs-based business model.

We have selected three utility mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.

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.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

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 service providers. EVUAX also invests around 35% of its assets in convertible debentures of utilities and telecom companies.

This Zacks sector – Utilities product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

EVUAX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 1.14%, which is below the category average of 1.20%. The fund generated three and five-year returns of 9.7% and 7.1%, respectively.

Fidelity Telecom and Utilities (FIUIX - Free Report) seeks returns through growth of capital and income. FIUIX generally invests a major portion of its assets in securities of companies from both telecom and utilities. The fund invests not only in U.S. companies but also in non-U.S. companies.

This Zacks sector – Utilities product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FIUIX sports a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.54%, which is below the category average of 1.20%. The fund generated three and five-year returns of 10.6% and 7.7%, respectively.

Franklin Utilities A (FKUTX - Free Report) seeks capital growth and current income over the long run. FKUTX invests a large chunk of its assets in utilities companies that are involved in providing electricity, natural gas, water and communications services.

This Zacks sector – Utilities product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FKUTX carries a Zacks Mutual Fund Rank of 2 and has an annual expense ratio of 0.74%, which is below the category average of 1.20%. The fund generated three and five-year returns of 10.2% and 9.2%, respectively.

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