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AWTAX or BULIX: Which Utility Fund Should You Buy?

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Mutual fund investors have regained their focus on the Utilities sector, owing to the recent spike in geopolitical tensions in the Middle East. The assassination of Iran’s military chief by the United States toward the end of last week was the reason for heightened tensions in the region.

Utilities to be in High Demand in 2020

The utilities sector put up a decent performance last year, gaining 26.4% throughout 2019. A primary reason behind the sector’s growth last year was the ongoing U.S.-China trade conflict, which kept rattling the stock markets time to time, thus inducing volatility in the major indexes.

Investors thus opted to invest their assets into utilities, which are considered safe havens because of the nature of their products and services. This is why the defensive sector witnesses steady demand irrespective of market irregularities.

However, now the U.S.-China trade war is at bay, with Chinese delegates arriving in Washington on Jan 13 to sign the phase one trade deal between the two countries on Jan 15.

But another threat has emerged. Qassem Soleimani, chief of Iranian military operations in Syria and Iraq, was killed in an airstrike authorized by President Donald Trump on Jan 3 in Baghdad. This puts the already hostile U.S.-Iran relations in a tough spot, as both countries exchanged heated words and actions over the course of the weekend.

Tehran said that the country would no longer stand by its 2015 nuclear pact with global powers. Trump had pulled U.S. out of the nuclear deal in 2018. In addition, Trump reportedly threatened Iraq with harsh sanctions should the country follow through the resolution after its lawmakers voted to expel about 5,200 U.S. troops stationed in the country to help fight Islamic State extremists.

Picking the Right Utilities Fund

Keeping the aforementioned developments in mind, one may note that geopolitical tensions have escalated recently. Therefore, it is rather imperative for fund investors to invest in utilities. However, choosing the right mutual funds for one’s portfolio can be a rather tedious task.

Let us, therefore, take a look at two mutual funds that invest in the utilities sector and discuss which of these is best suited to your portfolio. Both the mutual funds mentioned below carry a Zacks Mutual Fund Rank #1 (Strong Buy).

AllianzGI Global Water Fund Class A (AWTAX - Free Report)  aims for long-term capital growth. The fund invests the 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, Global Water Indices or the S-Network Global Water Index. The non-diversified fund invests in companies that are solely engaged in water-related activities.

This Sector-Utilities product has a history of positive total returns for over 10 years.  Specifically, the fund’s returns are 10.7% 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 AllianzGI Global Water Fund Class A, as of the last filing, allocates its assets in top two major groups — Foreign Stock and Intermediate Bond. Further, as of the last filing, American Water Works, Xylem Inc W I and Danaher Corp were the top holdings for AWTAX.

AWTAX was incepted on Mar 31, 2008, and carries an expense ratio of 1.22%. The fund requires a minimal initial investment of $1000.

American Century Utilities Fund Investor Class (BULIX - Free Report) seeks current income and long-term appreciation of capital and income. The fund invests the majority of its assets in equity securities of companies in the utilities sector. In a bid to build the fund’s portfolio, the portfolio managers use quantitative and qualitative management techniques along with risk controls.

This Sector-Utilities product has a history of positive total returns for over 10 years.  Specifically, the fund’s returns are 8.1% over the 3-year and 7% 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 American Century Utilities Fund Investor Class, as of the last filing, allocates its assets in top two major groups — Intermediate Bond and Foreign Bond. Further, as of the last filing, AT&T Inc, Verizon Communications and Southern Co/The were the top holdings for BULIX.

BULIX was incepted on Mar 01, 1993, and carries an expense ratio of 0.67%. The fund requires a minimal initial investment of $2500.

Conclusion

Taking a closer look at AWTAX and BULIX, we find that the latter clearly outpaces the former. Although both funds carry the same Zacks Rank and AWTAX has higher returns over the 3- and 5-year periods as compared to BULIX, the latter has much lesser risk associated with it than the former.

BULIX has a three-year beta of 0.38, which is lower than AWTAX’s 0.91. Second, BULIX’s expense ratio is much lesser than that of AWTAX as well. Therefore one should buy BULIX as it offers lower risk (lower beta) and greater profitability (lower expense ratio).

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