Top 5 Utility Mutual Funds (March 2011)

Utilities funds are an excellent choice for investors seeking a steady income flow. They are also used as defensive instruments, which protect investments during a market downturn. This is because the demand for essential services such as those provided by utilities remains unchanged even during difficult times. In recent years, many funds in this category have increased their exposure to emerging markets and unregulated companies. This has increased the risk involved but has also generated higher returns.

Below we will share with you 5 top rated utilities mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect the fund to outperform its peers in the future.

Invesco Utilities Investor (FSTUX) invests a large share of its assets in stocks of companies in the utilities sector or related industries. Firms engaged in the production and distribution of gas and electricity as well as those providing telecom services constitutes its major investments. Up to 25% of the fund’s assets may be used to purchase foreign securities. The utilities mutual fund has a five year annualized return of 3.62%.

The utilities mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.49% compared to a category average of 1.43%.

Gabelli Utilities AAA (GABUX) seeks both income and capital growth by investing at least 80% of its assets in utilities companies. It focuses on firms providing electricity, gas and water services or equipment for these industries. The utilities mutual fund has a three year annualized return of 3.82%.

Mario J. Gabelli is the fund manager has managed this utilities mutual fund since 1999.

Fidelity Select Utilities (FSUTX) invests the majority of its assets in utility companies or those deriving a large share of their revenues from operations in this sector. It is non-diversified and may purchase foreign securities. It may also invest a large share of its assets in a single issuer. It is a no-load fund.

The utilities mutual fund returned 17.78% in the last one year period and has a five year annualized return of 4.01%.

Vanguard Utilities Index Admiral Shares (VUIAX) seeks to track the performance of the MSCI U.S. Investable Market Utilities Index. This is index consists of companies in the utilities sector regardless of their market capitalization. This utilities mutual fund returned 13.8% over the last one year period.

As of December 2010, this utilities mutual fund held 87 issues, with 6.64% of its total assets invested in Southern Company.

Franklin Utilities A (FKUTX) concentrates on purchasing equity in public utilities companies. More than 25% of its assets are invested in companies that provide electricity, gas, water and communication services. The utilities mutual fund returned 13.26% in the last one year period and has a ten year annualized return of 7%.

The utilities mutual fund has a minimum initial investment of $1,000 and an expense ratio of 0.78% compared to a category average of 1.43%.

To view the Zacks Rank and past performance of all utilities mutual funds, then click here.

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