5 Utilities Funds to Counter Turkey’s Currency Crisis

One of the more popular safe-haven sectors is utilities -- here's why

By , Zacks Investment Research

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Continued tensions over a significant decline in Turkey’s lira against the U.S. dollar continued to weigh on investor sentiment on Aug 13. Lira ended near its record low levels on the day, following concerns over the health of Turkey’s financial system.

Additionally, U.S. sanctions against top Turkish government officials and doubling of metal tariffs against Turkey added to the woes. Amid this turmoil, investors may scurry toward safe-haven sectors, which emerged as investments of choice.

One of the most popular safe-haven sectors is utilities. This sector comprises companies that provide telephone, gas, water and electricity services. In this context, investors looking for stable dividend and interest income can opt for mutual funds having significant exposure in utilities stocks.

Turkey’s Lira Close Near Record Lows

The Turkish lira lost around 20% against the U.S. dollar to around 7.131 lira during the day on Aug 13, reaching its lowest level ever. Although lira recovered slightly at the close on Aug 13, it traded below late Friday’s 6.427 lira to 6.974 lira per dollar.

Slight recovery in the lira is due to the Turkish Central Bank’s promise to offer “all the liquidity the banks need” in its statement. However, the central bank’s effort was not enough to avert the continued decline in lira. One of the key catalysts behind this plunge is worries over Turkey’s capacity to repay foreign-currency debts that rattled global equity markets.

Another was the United States’ decision to increase tariffs on steel and aluminum imports from Turkey. Moreover, Turkish president Recep Tayyip Erdogan said that his country is facing an “economic war.” Also, the European Central Bank, whose leader happens to be Erdogan, has raised concerns about the country’s economic stability.

Buy These 5 Utilities Mutual Funds

Following this development, investors shifted their attention toward safe-haven investments like utilities mutual funds. This is borne out by the fact that Utilities Select Sector SPDR Fund (NYSEARCA:XLU) has gained 5.3% in the past three months. Additionally, mutual funds related to this sector registered returns of 5% during the same period.

Banking on this encouraging backdrop, we have selected five utilities mutual funds that flaunt a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). 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 should one be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

These funds also have encouraging one-year returns and minimum initial investment within $5000. Also, each of these funds has a low expense ratio.

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.

Wells Fargo Utility and Telecommunications A (MUTF:EVUAX) invests heavily in common and preferred stocks and investment-grade debt securities of utilities and telecom service providers. EVUAX also invests around 35% of its assets in convertible debentures of utilities and telecom companies.

EVUAX carries an expense ratio of 1.14% compared with the category average of 1.31%. Moreover, EVUAXrequires a minimal initial investment of $1,000. The fund has one-year annualized returns of 3.4%.

EVUAX has a Zacks Mutual Fund Rank #2. Further, Timothy P. O’Brien is the fund manager of EVUAX since 2002.

Fidelity Select Utilities Growth (MUTF:FSUTX) normally invests a large chunk of its assets in common stocks of companies mainly involved in the utilities sector and companies that generate the majority of their revenue from multiple utilities operations. FSUTX seeks growth of capital by investing in both U.S. and non-U.S. companies.

FSUTX carries an expense ratio of 0.77% compared with the category average of 1.31%. Moreover, FSUTX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 10.1%.

FSUTX has a Zacks Mutual Fund Rank #1. Further, Douglas Simmons is the fund manager of FSUTX since 2006.

Putnam Global Utilities A (MUTF:PUGIX) invests mostly in common stocks of large- and mid-cap companies across the globe. PUGIX invests a major portion of its assets in securities of companies predominantly involved in the utilities industry. PUGIX seeks capital growth and current income.

PUGIX carries an expense ratio of 1.23% compared with the category average of 1.31%. Moreover, PUGIX requires a minimal initial investment of $0. The fund has one-year annualized returns of 4.8%.

PUGIX has a Zacks Mutual Fund Rank #2. Further, William Rives is the fund manager of PUGIX since 2017.

MFS Utilities R6 (MUTF:MMUKX) invests a bulk of its assets in securities of companies involved in the utilities sector. MMUKX invests in those companies that are involved in the production, manufacture, transmission, generation, distribution or sale of electric, water, gas and other types of energy.

MMUKX carries an expense ratio of 1.23% compared with the category average of 1.31%. Moreover, MMUKX requires a minimal initial investment of $0. The fund has one-year annualized returns of 5.6%.

MMUKX has a Zacks Mutual Fund Rank #2. Further, Maura A. Shaughnessy is one of the fund managers of MMUKX since 1992.

Fidelity Telecom and Utilities (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 carries an expense ratio of 0.54% compared with the category average of 1.31%. Moreover, FIUIX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 5.5%.

FIUIX has a Zacks Mutual Fund Rank #2. Further, Douglas Simmons is the fund manager of FIUIX since 2005.

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