Yahoo Finance 3 Utility Mutual Funds to Combat Continued Market Volatility
In recent weeks, trade has been reeling under the fact that the Federal Reserve is just not ready yet to commit to a timeline for the first interest rate cuts since its restrictive monetary policy commenced in early 2022. The Fed’s decision to delay the cut has stemmed from the fact that inflation numbers released in 2024 have remained hotter than expected. A sufficient slowing down of the economy, conducive for rate cuts, is, in the Fed’s view, yet to be witnessed.
Treasury yields have remained high, although they are down from the 16-year highs seen in late October. The Fed has been sending mixed signals about cutting rates this year, not ruling it out. In fact, they have continued to re-iterate that there will be three cuts as promised. However, a fast-developing situation in the Middle East might have a bearing on that policy decision going forward.
Markets are likely to stay volatile for a while. Defensive stocks remain in demand during market volatility because of their intrinsic nature. Even during the 2008 financial crisis, they had held the fort. Utility mutual funds are examples of such defensive instruments that protect investments when the goings are not good. The steady nature of the sector is ensured by the fact that demand for essential services is relatively unaffected by market volatility because of their non-discretionary nature. Whatever the state of the economy, a household or a business needs electricity, water, or gas, even if prices go up.
In addition, utilities are usually considered long-term buy-and-hold options as they regularly declare dividends, and dividend yields on utility stocks are generally higher than those paid by other equities.
In this environment, utility mutual funds provide much-required 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. We have also made sure that at least 70% of the fund is invested in the utility sector.
American Century Utilities Investor Shares BULIX primarily invests in equity securities of utility companies. BULIX advisors use quantitative and qualitative management techniques as well as risk controls in arriving at their investment decisions. This involves ranking stocks based on their growth and valuation characteristics.
Stephen Quance has been the lead manager of BULIX since Aug 3, 2023, and 99.6% of the fund is currently invested in the utility sector. Three top holdings for BULIX are 11.1% in NextEra Energy, 7.1% in Duke Energy and 6.3% in The Southern Company.
BULIX’s 3-year and 5-year annualized returns are 1.8% and 2.8%, 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.
Franklin Utilities Advisor FRUAX seeks capital appreciation and current income by investing the majority of its net assets in the public utility sectors like natural gas, water and communications services. FRUAX invests mostly in equity securities, which comprise mainly common stocks.
John Kohli has been the lead manager of FRUAX since Dec 30, 1998, and 93.2% of the fund is currently invested in the utility sector. Three top holdings for FRUAX are 9.7% in NextEra Energy and 5.5% each in The Southern Company and Edison International.
FRUAX’s 3-year and 5-year annualized returns are 5.3% and 6%, respectively. Its net expense ratio is 0.56%. FRUAX has a Zacks Mutual Fund Rank #2.
Franklin Utilities Fund FKUTX invests the majority of its net assets in equity and equity-related securities of utility companies. These consist mainly of common stocks.
John Kohli has been the lead manager of FKUTX since Dec 30, 1998, and 93.2% of the fund is currently invested in the utility sector. Three top holdings for FKUTX are 9.7% in NextEra Energy and 5.5% each in The Southern Company and Edison International.
FKUTX’s 3-year and 5-year annualized returns are 5.2% and 5.8%, respectively. Its net expense ratio is 0.71%. FKUTX has a Zacks Mutual Fund Rank #2.
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