Consumer Confidence Continues to Dip: 3 Utility Funds to Take Refuge in

In this uncertainty, investors may find it wise to focus on utility funds to help protect their portfolios. Notable options include Franklin Utilities Fund FKUTX, Fidelity Select Utilities FSUTX and American Century Utilities Inv BULIX.

Consumer Confidence Weakens

Consumer confidence dropped to 90.8 in July from a revised 92.2 in June, according to data released by the Conference Board last week. The reading also fell short of economists' expectations of 92.3.

Americans remain concerned about the job market, with many believing employment opportunities are becoming harder to find. The Present Situation Index, which measures views on current business and labor market conditions, fell 3.6 points to 114.9, marking its third consecutive monthly decline.

Meanwhile, the Expectations Index, which tracks consumers' short-term outlook on income, business conditions, and employment, remained unchanged at 74.7 in July.

At last week's FOMC meeting, the Federal Reserve kept its benchmark interest rate unchanged at 3.50%-3.75%, a move that was widely expected. Even so, some consumers worry the central bank may not be acting quickly enough to keep inflation under control.

Inflation has remained a key challenge for policymakers, who have been weighing another quarter-point rate increase. Oil prices have climbed sharply since the U.S.-Iran conflict began in February, adding upward pressure on consumer prices.

Inflation showed signs of easing in June after the United States and Iran reached a temporary agreement to halt attacks. The consumer price index fell to 3.5%, beating analysts' expectations of a rise to 3.8% and improving from May's 4.2% reading.

That relief proved short-lived. The ceasefire later collapsed, fighting resumed in July, and the United States only halted strikes on Iran again last week. Although President Donald Trump said fresh efforts are underway to restart peace negotiations, the conflict remains unresolved, leaving markets vulnerable to continued volatility.

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 utilities securities.

FKUTX’s 3-year and 5-year annualized returns are 16.9% and 12.2%, respectively. Franklin Utilities Fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.71%, which is lower than its category average of 0.94%.

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 17.3% and 13.6%, 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 16% 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 of 0.99%.

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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