The trade war between the United States and China shows no signs of ebbing. In his latest attempt to curb China, President Trump announced a spate of additional tariffs on imports from the Asian country. While China has responded that it would impose retaliatory tariffs.
Renewed fears of a trade war may result in a scurry towards safe-haven sectors. And one of the most-popular, safe-haven sectors is utilities. Under such unfavorable geopolitical circumstances, betting on mutual funds with significant exposure to utility companies seems prudent.
More Tariffs on Chinese Imports
On Jul 10, the Trump administration unveiled a spate of fresh tariffs on imports from China. Trade Representative Robert Lighthizer stated that Chinese commodities worth $200 billion such as fruits and vegetables, handbags, refrigerators, rain jackets and baseball gloves among others could be charged with 10% tariffs.
The newly proposed tariffs would undergo a two-month review post which a decision on its future would be taken. Trump reasoned that he is wary of China’s unfair trade practice and the country’s tendency to steal intellectual property from the United States.
Lobby U.S. Government – China to Foreign Companies
On Jul 12, Beijing stated that foreign companies with significant operations in China would bear the brunt of its trade war with the United States. The Asian country also urged U.S. companies in China to lobby the government and protect their interests.
China’s commerce ministry spokesperson, Gao Feng stated in a media briefing that American companies should “do more” to “defend their own interests.” He also stated that the two countries have not been in touch with each other to discuss these matters.
3 Best Fund Choices
Given such circumstances, we have highlighted three utility mutual funds that are poised to gain significantly from escalating trade war woes. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.
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.
Utility Funds to Pick as US-China Trade War Heats Up: Fidelity Select Utilities Portfolio (FSUTX)
Fidelity Select Utilities Portfolio (MUTF:FSUTX) seeks growth in capital. FSUTX invest the majority of its assets in securities of companies primarily involved in the utility sector and companies deriving a large portion of their revenues from their utility operations. FSUTX offers dividends & capital gains twice a year in April and December.
This Sector – Utilities product has a history of positive total returns for over 10 years. Specifically, the fund has returned 9% over the three-year and 10.9% over the five-year benchmarks.
FSUTXhas a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.77%, which is below the category average of 1.10%.
Utility Funds to Pick as US-China Trade War Heats Up: Fidelity Telecom and Utilities Fund (FIUIX)
Fidelity Telecom and Utilities Fund (MUTF:FIUIX) seeks returns through growth of capital and income. FIUIX generally invests a major portion of its assets in securities of companies from both telecom and utilities. The fund invests not only in U.S. companies, but also in non-U.S. companies. FIUIX is a non-diversified fund.
This Sector – Utilities product has a history of positive total returns for over 10 years. Specifically, the fund has returned 6% over the three-year and 9.2% over the five-year benchmarks.
FIUIXhas a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.54%, which is below the category average of 1.10%.
Utility Funds to Pick as US-China Trade War Heats Up: AllianzGI Global Water Fund (AWTAX)
AllianzGI Global Water Fund (MUTF:AWTAX) invests a bulk of its assets in common stocks of companies, which are included in one or more key indexes like the S-Network Global Water Index (Composite), the NASDAQ OMX US Water Index, the S&P Global Water Index and the Global Water Index. The fund seeks capital growth for the long run by investing in companies involved in water-linked activities.
This Sector – Utilities product has a history of positive total returns for over 10 years. Specifically, the fund has returned 5.7% over the three-year and 7.1% over the five-year benchmarks.
AWTAXhas a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.33%, which is below the category average of 1.36%.
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