The Federal Reserve chose to keep interest rates unchanged at the end of its two-day policy meeting on Wednesday. Following the announcement, stock markets declined as investors grew more concerned about the state of the economy. Inflation has been on the rise lately, while ongoing geopolitical tensions have driven global oil prices higher, creating further pressure.
Given these conditions, the Fed has adopted a cautious stance, making a rate cut unlikely in the near term until inflation begins to ease.
In this uncertain environment, investors may find it wise to focus on utility funds to help protect their portfolios. Notable options include Franklin Utilities Fund (FKUTX – Free Report) , Fidelity Select Utilities (FSUTX – Free Report) and American Century Utilities Inv (BULIX – Free Report) .
Fed Holds Interest Rate Cut
The decision to hold rates steady was widely expected, but the Fed also warned that economic conditions could deteriorate further due to rising oil prices since the start of the U.S.-Iran conflict on Feb. 28.
Federal Reserve Chair Jerome Powell warned that elevated oil prices could push inflation even higher. At the Federal Open Market Committee (FOMC) meeting, policymakers voted 8-4 to maintain interest rates within the 3.5-3.75% range.
So far this year, the Fed has avoided cutting rates as inflation continues to show upward pressure. Data from the Commerce Department indicated that the consumer price index (CPI) increased by 0.9% in March after rising 2.4% in February, bringing the annual inflation rate to 3.3%, the highest since May 2024.
Meanwhile, tensions in the Middle East have added to inflation risks. Reports suggest that President Donald Trump has asked aides to extend the blockade at the Strait of Hormuz after rejecting Iran’s request, while both sides have also called off further peace negotiations, raising uncertainty in global markets.
3 Best Choices
We’ve identified three utility mutual funds that have demonstrated impressive annualized returns over 3-year and 5-year periods. These funds also hold a Zacks Mutual Fund Rank of #1 (Strong Buy), require an initial investment of no more than $5,000 and have a low expense ratio.
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 seeks capital appreciation and current income. FKUTX invests at least 80% of its net assets in securities of public utilities. Franklin Utilities Fund invests more than 25% of its total assets in companies operating in the utilities industry. The manager expects more than 50% of the fund’s assets to be invested in electric utility securities.
FKUTX’s 3-year and 5-year annualized returns are 16.1% and 12.3%, respectively. Franklin Utilities Fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.70%, which is lower than its category average.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Utilities fund seeks capital appreciation. FSUTX normally invests at least 80% of its assets in common stocks of companies principally engaged in utilities and companies deriving the majority of their revenues from utility operations.
FSUTX’s 3-year and 5-year annualized returns are 17.2% and 13.4%, respectively. Fidelity Select Utilities fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.65%, which is lower than its category average.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
American Century Utilities Inv fund seeks current income and long-term capital growth. BULIX mainly invests 80% of its assets in stocks of companies engaged in the utilities industry. Within this 80% category, the managers will not buy shares of a company unless 50% or more of the company’s revenues or net profits come from the ownership or operation of facilities used to provide electricity, natural gas, telecommunications services, cable television, water or sanitary services.
BULIX’s 3-year and 5-year annualized returns are 14.9% and 9.4%, respectively. American Century Utilities Invfund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.66%, which is lower than the category average.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
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