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4 Utility Mutual Funds to Counter US-Sino Trade Spat

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Fresh trade tensions between the United States and China are not only inducing volatility in the equity markets again, but also threatening business investment and growth in the country, which is making investors flee to safer grounds.

President Donald Trump’s new executive order on securing the information and communications technology and services supply chain coupled with the prolonged U.S.-China trade war is taking a toll on the technology sector, with blue-chip tech companies and chipmakers being hit hard.

The order gives the government the authority to restrict transactions related to information or communications technology that pose threats to national security. It states that technology which is “designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary” can be blocked by the government.

The order makes it difficult for foreign technology companies to conduct business with American organizations. For instance, the U.S. government blacklisted Huawei Technologies Inc. last week, which prevents American companies from selling or transferring technology to the company without government authorization.

However, the U.S. government temporarily eased some restrictions on the Chinese telecom giant this week, allowing it to buy U.S.-made goods for providing software updates to existing Huawei handsets and maintaining existing networks. But the uncertainty over conducting business and further change in trade policies looms large.

Earlier this month, U.S.-Sino trade talks came to a halt owing to Trump’s dissatisfaction with the progress of negotiations on a new trade agreement. In addition, the increased tariffs on Chinese goods since May 10 worsened the scenario.

But tariffs aren’t the only concern for financial markets now. Trump’s executive order is also affecting U.S. technology companies with international trade and transactions.

In such a gloomy scenario, investors must focus on companies that primarily offer services whose demand is unlikely to dampen. After all, not all sectors are exposed to trade tariffs or restrictive trade orders in the country.

This brings us to the utility sector.

Why Invest in Utility?

In times of market uncertainties, mutual funds that invest in utility companies are the best bets. First, utility companies are non-cyclical, which means that these never encounter diminished demand even in grim economic scenarios because of the nature of services they offer. After all, water, electricity and HVAC (heating, ventilation and air conditioning) are necessities one can’t do away with.

In fact, the Utilities Select Sector SPDR Fund (XLU), which climbed 2.9% in the past one month, is one of the four out of 11 sectors that gained in the same timeframe.

Now we come to the second-most vital question: 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).

4 Best Choices

We have selected four utility mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). 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.

Fidelity Telecom and Utilities Fund (FIUIX - Free Report) aims for high total return by combining current income and capital growth. The fund mostly invests in common stocks of companies. It invests the majority of its assets in securities of telecommunications services organizations and utility companies. The non-diversified fund invests in U.S. and non-U.S. issuers alike.

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 carries a Mutual Fund Rank #1. The fund has an annual expense ratio of 0.70%, which is below the category average of 1.07%. It has three and five-year returns of 9.9% and 8.2% respectively, and no minimum initial investment.

American Century Utilities Fund Investor Class (BULIX - Free Report) aims for current income and long-term growth of capital and income. The fund invests most of its net assets in equity securities of companies engaged in the utilities industry. The portfolio managers use quantitative and qualitative management techniques along with risk controls to create the portfolio of the fund.

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.

BULIX carries a Mutual Fund Rank #2. The fund has an annual expense ratio of 0.67%, which is below the category average of 1.07%. It has three and five-year returns of 6.5% and 7.1%, respectively, and a minimum initial investment of $2500.

PGIM Jennison Utility Fund- Class A (PRUAX - Free Report) aims for total return through a combination of capital growth and current income. The fund invests majority of its investable assets (fund's net assets and any borrowings for investment purposes) in equity and equity-related and investment-grade debt securities of utility 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.

PRUAX carries a Mutual Fund Rank #2. The fund has an annual expense ratio of 0.83%, which is below the category average of 1.07%. It has three and five-year returns of 10.7% and 7.4%, respectively, and a minimum initial investment of $2500.

AllianzGI Global Water Fund Class A (AWTAX - Free Report) aims for long-term capital appreciation. The non-diversified fund invests majority of its assets in common stocks and other equity securities of companies that are represented in one or more of the S&P Global Water Index, the NASDAQ OMX US Water or Global Water Indices or the S-Network Global Water Index (Composite), or that are substantially engaged in water-related activities.

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.

AWTAX carries a Mutual Fund Rank #2. The fund has an annual expense ratio of 1.22%, which is below the category average of 1.33%. It has three and five-year returns of 7.3% and 5.4%, respectively, and a minimum initial investment of $1000.

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