The U.S. utilities sector has put up a decent performance so far this year, owing to the ongoing U.S.-China trade uncertainties that have lasted for more than a year now. In fact, investors who seek to shield their portfolios from the deteriorating trade war conditions could actually consider investing in the sector. After all, utilities are considered a defensive sector as it witnesses stable demand in times of market turbulence.
Utility Sector a Sweet Spot
The Utilities Select Sector SPDR Fund (XLU) has added 21.7% on a year-to-date basis. Needless to say, the sector acts as a safe haven for investors when trade uncertainties persist in financial markets. This is because the demand for products and services offered by this sector is seldom lower by virtue of their nature.
Earlier this week, President Donald Trump warned that the much-awaited trade deal between the United States and China may take place after the 2020 U.S. elections in November. Trump said that he was in no hurry to sign an agreement until he runs for re-election. This puts the trade deal almost a year away from now.
Addressing a news conference in London, where he was attending a NATO meeting, the President said that the United States was doing “very well” from the trade war. He also claimed that the trade dispute was harming Beijing more than Washington and accused China of “ripping off the US for many, many years.” Such developments have put equities in a tight spot.
Further, escalating trade tensions between the United States, Brazil, Argentina and France have kept investors on tenterhooks.
Trump tweeted on Dec 2 that he was re-imposing tariffs on steel from Brazil and Argentina. Both countries had received exemptions from the 25% steel levies and 10% aluminum tariffs in May 2018.
Choosing the Right Utilities Fund
Considering the aforementioned events, one can note that trade-related issues have only amplified and therefore, investing in utilities could be the right move. However, choosing the right mutual funds for your portfolio come be a tiresome task. Let us, thus, take a look at two mutual funds that invest in the utilities sector and discuss which of these is best suited for your portfolio.
Fidelity Select Utilities Portfolio (FSUTX - Free Report) aims for capital growth. The non-diversified fund invests the majority of its assets in securities of companies primarily engaged in the utilities industry and companies generating most of their revenues from their utility operations. FSUTX invests in U.S. and non-U.S. companies alike.
This Sector-Utilities product has a history of positive total returns for over 10 years. Specifically, the fund’s returns are 14.8% over the 3-year and 9.6% of the 5-year period. To see how this fund performed compared in its category, and other #1 and #2 Ranked Mutual Funds, please click here.
The Fidelity Select Utilities Portfolio Fund, as of the last filing, allocates its assets in top two major groups — Intermediate Bond and Large Value. Further, as of the last filing, Exelon Corporation, Dominion Resources and Sempra Energy were the top holdings for FSUTX.
Sporting a Zacks Mutual Fund Rank #1 (Strong Buy), FSUTX was incepted on Dec 10, 1981, and carries an expense ratio of 0.78%. The fund requires no minimal initial investment.
PGIM Jennison Utility Fund - Class A (PRUAX - Free Report) seeks total return by combining capital growth and current income. The fund invests the majority of its assets in equity and equity-related and investment-grade debt securities of utility companies. PRUAX is a non-diversified fund.
This Sector-Utilities product has a history of positive total returns for over 10 years. Specifically, the fund’s returns are 12.6% over the 3-year and 7.5% of the 5-year period. To see how this fund performed compared in its category, and other #1 and #2 Ranked Mutual Funds, please click here.
The PGIM Jennison Utility Fund - Class A, as of the last filing, allocates its assets in the top two major groups — Intermediate Bond and Foreign Bond. Further, as of the last filing, NextEra Energy, American Electric Power Company and Ameren Corporation were the top holdings for PRUAX.
This Zacks Rank #2 (Buy) fund was incepted on Jan 22, 1990, and carries an expense ratio of 0.83%. The fund requires a minimal initial investment of $2500.
Upon taking a closer look at FSUTX and PRUAX, we find that the former clearly outpaces the latter. First, FSUTX has provided investors with higher returns over the 3- and 5-year periods. Second, FSUTX has a three-year beta of 0.32, which is lower than PRUAX’s 0.40. Therefore, one should buy FSUTX as it provides low risk and high returns.
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