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3 Utilities Funds to Ride Out the Pandemic

Zacks Equity Research

Financial markets around the globe may have nosedived over the last few weeks, but certain emerging tailwinds could push the broader markets in the coming months. Of course, given the pandemic’s effect and the global lockdown scenario, near-term outlook isn’t exactly promising, but the same may not be said about long-term prospects.

Also, one might note that mutual funds are meant to be held over a long period of time and hence the current economic scenario mustn’t be considered before zeroing on fund investments. In spite of this, if one wishes to be cautious about where they invest, mutual funds that put assets intodefensive sectors, such as utilities, could be a prudent choice.

Utility Among S&P 500’s Top Gainers in 5 Years

Utility has been among the top three gaining sectors of the S&P 500 Index over a period of five years, reflecting constant demand for the sector’s essential products and services among consumers. After all, the sector has risen 26.9% since 2015 compared with the broader market’s increase of 23.3% in the same timeframe.

One must remember that during this period, financial markets were rattled by the U.S.-China trade war, which began in 2018. The coronavirus outbreakhas been a recent factor, affecting global markets since the beginning of this year.

Despite the lockdown, consumers across the country have been using resources, such as water, electricity, natural gas and communication services etc, keeping demand for these essential products and services intact.The sector’s large-scale operations and stable balance sheets are indicative of its steady businesses.

Additionally, the $2-trillion worth coronavirus relief package by the government along with the Federal Reserve’s two consecutive interest rate cuts this year are bound to ease financial constraints for individuals and businesses, thereby boosting the economic activity in the coming months as well.

3 Funds to Buy

We have, therefore, selected three mutual funds that invest in companies which offer utilities services. All of these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). In addition, the minimum initial investment for these funds is within $5,000.

We expect these funds to outperform 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).

Franklin Utilities Fund Advisor Class FRUAX aims for capital growth and current income. The fund invests the majority of its assets in securities of public utilities companies. These organizations operate in areas of electricity, natural gas, water and communications services etc. The fund mostly invests in common stocks of companies.

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

FRUAX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.58%, which is below the category average of 1.11%. It has returned 11.1% over a year. The fund has no minimum initial investment.

PGIM Jennison Utility Fund- Class A PRUAX aims for total return via capital growth and current income.The fund invests the majority of its assets in equity, equity-related and investment-grade debt securities of utility companies. PRUAXis a non-diversified fund.

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

PRUAX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.84%, which is below the category average of 1.11%. It has returned 14.1% over a year. The fund has a minimum initial investment of $1000.

American Century Utilities Fund Investor Class BULIX invests the majority of its assets in equity securities of companies in the utilities industry. The fund seeks capital appreciation and income over a long period.

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

BULIX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.67%, which is below the category average of 1.11%. It has returned 4.4% over a year. The fund has a minimum initial investment of $2500.

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