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4 Safe Haven Mutual Funds That Continue to be Solid Bets

Zacks.com logo Zacks.com 3/30/2021

After a year long downturn filled with high-highs and low-lows the market is gaining traction, marking an upward trend. However, fears of inflation and new coronavirus strains constantly keep investors under pressure. The scope of rapid spread of these new strains also puts in doubt the vaccine’s efficiency and makes the chance of going back to normal difficult.

Given the current scenario, investors, especially conservative ones are looking for ways to protect their money from a potential market downturn and rising inflation. Investors have stepped down from technology and growth funds lately, especially with the 10-year Treasury yields jumping high and over pricey stock valuations. Under such condition, utilities have become an attractive alternative and substitutes bonds, mostly because they pay dividends and offer stability.

Now, we have gold, medical and REITs too when considering safe haven options, but utilities stand a better chance during this downturn. Utilities are poised to benefit as the Biden administration push toward green energy adaptation. In fact, President Joe Biden is set to unveil details of a major infrastructure package expected to include record spending on climate change by the end of March. So far, the package is expected to have $3 trillion for installing new electric vehicle charging stations, funds for building energy-efficient homes and construct new power lines.

While utilities lag in gains compared to cyclical sectors, including energy, currently they are inexpensive and offer better safety than technology and other growth stocks. Lower the volatility, higher are chances of remaining invested in these funds during correction times. So far this month, the Utilities Select Sector SPDR Fund (XLU) has added 7.5% compared to the S&P 500’s rise of 1.9%.

4 Mutual Fund Picks

We have, therefore, selected four defensive mutual funds that 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 their 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).

Fidelity Select Utilities Portfolio FSUTX aims for capital appreciation. This non-diversified fund invests majority of its assets in common stocks of companies primarily engaged in the utilities industry and companies generating most of their revenues from utility operations.

This Zacks Sector – Utilities has a history of positive total returns for more than 10 years. Specifically, FSUTX has returned 10.2% and 12.5%, in the past three and five-year period, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSUTX, a Zacks Mutual Fund Rank #1 fund, has an annual expense ratio of 0.75%, which is below the category average of 1.10%.

Franklin Utilities Fund Class A1 FKUTX aims to provide capital appreciation and current income. The fund invests majority of its assets in the equity securities of utilities companies that provide electricity, natural gas, water and communications services to the public and companies. 

This Zacks Sector – Utilities has a history of positive total returns for more than 10 years. Specifically, FKUTX has returned 8.5% and 10.7%, in the past three and five-year period, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FKUTX, a Zacks Mutual Fund Rank #1 fund, has an annual expense ratio of 0.73%, which is below the category average of 1.10%.

Virtus AllianzGI Water Fund Class A AWTAX aims for capital growth over a long period of time. The fund invests majority of its assets in securities of companies that are included on the S&P Global Water Index, the Nasdaq OMX US Water or Global Water Indices or the S-Network Global Water Index. AWTAX is a non-diversified fund.

This Zacks Sector – Utilities has a history of positive total returns for more than 10 years. Specifically, AWTAX has returned 10.7% and 11.7% in the past three and five-year period, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

AWTAX, a Zacks Mutual Fund Rank #1 fund, has an annual expense ratio of 1.22%, which is below the category average of 1.36%.

PGIM Jennison Utility Fund- Class A PRUAX aims for capital appreciation and current income. This non-diversified fund invests majority of its assets in equity and equity-related and investment-grade debt securities of utility companies.

This Zacks Sector – Utilities has a history of positive total returns for more than 10 years. Specifically, PRUAX has returned 10.7% and 10.1%, in the past three and five-year period, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRUAX, a Zacks Mutual Fund Rank #2 fund, has an annual expense ratio of 0.83%, which is below the category average of 1.10%.

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