If you are looking for steady returns, then utility stocks are often a good choice. After all, they are known as “widows and orphans” investments (it’s hard to live without water and electricity, right?). The dividends also usually are attractive.
Yet picking the right utility stock can be tough. In some cases, a company might have too much debt or must deal with regulatory issues.
So instead, another approach is to take a look at utility mutual funds. Here are some of the standout offerings:
Franklin Utilities
Over the decades, Franklin Resources (NYSE:BEN) has been able to post consistent returns, which have created substantial wealth for clients. Thus, it is no surprise that its Franklin Utilities (MUTF:FKUTX) fund takes a conservative approach to things.
For the most part, the focus is on traditional utilities — not energy operators or telecom firms. This helps to mute the volatility. Top holdings include Southern Company (NYSE:SO), Entergy (NYSE:ETR), Sempra Energy (NYSE:SRE) and NextEra Energy (NYSE:NEE).
The dividend yield? It’s a juicy 3.47%.
MFS Utilities
When it comes to the long term, the MFS Utilities (MUTF:MMUFX) fund has a great track record. The annual average return for the last decade is 8.18%. And for the past 15 years, it is an impressive 10.5%.
What explains this? There are several reasons. First of all, the MFS fund has done a good job at avoiding risks. At the same time, the focus on dividends has been critical for providing returns.
However, the fund has been far from perfect. Keep in mind that it lost roughly 38% of its value in 2008.
American Century Utilities
The portfolio managers of the American Century Utilities (MUTF:BULIX) fund take a so-called quant approach to investing. That is, they use sophisticated algorithms and software to construct portfolios.
It sounds a bit spooky, but it can work. In fact, some of the world’s best investors use quant strategies. Interestingly enough, it can be a way to get emotion out of investment decisions. There also might be more precision in coming up with valuation models.
Interesting enough, the American Century fund does sport a good dividend, which comes to 3.18%. The expense ratio is also a reasonable 0.7%.
Fidelity Telecom and Utilities
The manager of the Fidelity Telecom and Utilities (MUTF:FIUIX) fund, Douglas Simmons, takes an eclectic approach. In other words, his goal is not necessarily focused on dividends. As a result, he often will invest in companies that have strong growth ramps, which could produce nice capital gains. For example, the fund’s top holding is AT&T (NYSE:T), which mostly deals with mobile phones.
Tom Taulli is the author of various books, including “All About Commodities.” He does not own a position in any of the stocks named here.
