Investors with a conservative mindset looking for stable current income would do well to consider utility funds. They are 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. Though this strategy has increased the risk involved, it has also led to higher returns. Funds from this category have also benefited from the widespread economic slowdown globally and stock market volatility.
Thus, investing in utilities mutual funds seems prudent as of now. However, choosing the right mutual funds for your portfolio can become cumbersome. To that end, let us find out which of the two funds discussed below is better.
PGIM Jennison Utility Fund – Class A PRUAX
This fund seeks total return through both capital growth and current income. The fund invests the majority of its assets in equity and equity-related and investment-grade debt securities of utility companies. PRUAX is a non-diversified fund.
This Sector – Utilities product has a history of positive total returns for over 10 years. Specifically, the fund’s returns are 8.3% over the 3-year and 10.8% of the 5-year period. To see how this fund performed compared in its category, and other #1 and #2 Ranked Mutual Funds, please click here.
Meanhwile, as of the last filing, Nextera Energy Inc and Eversource Energy were the top holdings for PGIM Jennison Utility Fund – Class A.
This Zacks Mutual Fund Rank #1 (Strong Buy) was incepted in August 1981 and is managed by PGIM Investments. PRUAX carries an expense ratio of 0.84% and requires a minimum initial investment of $1,000.
American Century Utilities Fund Investor Class BULIX
The fund aims for current income and long-term growth of capital and income. It invests most of its net assets in equity securities of companies engaged in the utilities industry. The portfolio managers use quantitative and qualitative management techniques along with risk controls to create the portfolio of the fund.
This Sector – Utilities product has a history of positive total returns for over 10 years. Specifically, the fund’s returns are 3.1% over the 3-year and 6.9% of the 5-year period. To see how this fund performed compared in its category, and other #1 and #2 Ranked Mutual Funds, please click here.
Meanwhile, as of the last filing, Nextera Energy Inc. and Dominion Energy PLC were the top holdings of American Century Utilities Fund Investor Class.
This Zacks Mutual Fund Rank #2 (Buy) fund was incepted in March 1993 and is managed by American Century. BULIX carries an expense ratio of 0.67% and requires a minimum initial investment of $2,500.
While both PRUAX and BULIX are buy-rated funds, upon having a closer look we find that PRUAX is a clear winner. BULIX’s operating and administrative expenses are higher than PRUAX. Moreover, PRUAX also has a history of providing higher returns. Meanwhile, BULIX has a three-year beta of 0.49 compared with PRUAX’s 0.55. However, a marginally higher beta does not make the latter any less attractive. So, taking into consideration all the factors, PRUAX should be on your radar as it has a history of providing better returns at lower costs.
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