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According to Morningstar, the five-year return for utility funds approaches 10% on average. In terms of performance, utility funds can hold their ground against stocks representing other sectors. Utility companies that provide these services may have an easier time maintaining profit margins in leaner times, compared to companies in other stock market sectors. While consumers may cut back on dining out or shopping when the economy slows, they still need to heat their homes, run the lights and have running water. Utility funds can also be attractive during a recession or periods of economic decline, since demand for these services tends to hold steady. The dividend yields from utility funds, which typically range between 1% and 3%, can outstrip the returns you might earn with bonds, CDs or a savings account. If you’re in the 10-year countdown to retirement or you’re already retired, having a consistent source of income from your investments can help to shore up your retirement budget. Next, utility funds that pay dividends can provide steady and reliable income for investors. More diversification makes it easier to manage and balance risk. With so many utility funds to choose from, you can tailor your portfolio to focus more on renewable versus non-renewable energy if that’s your preference or zero in on a specific sub-category, such as water services. Utilities can be promising for investors in more ways than one.įirst, investing in utility funds is a way to diversify your portfolio it lacks exposure to the utilities sector. Active management means there’s a fund manager making decisions about what to hold in the fund, with the end goal of beating a particular benchmark or index. An index fund tends to be passively managed, whereas traditional utility funds or ETFs can either be actively or passively managed. Some utility funds follow an index strategy, meaning they attempt to match the performance of an underlying benchmark or index. Utility funds and ETFs that pay dividend income tend to be better suited to a long-term investment strategy while growth-focused funds may work better for delivering near-term gains. Income utility funds, on the other hand, primarily focus on delivering income to investors in the form of dividend payouts. Capital appreciation means the fund’s goal is increasing share prices to deliver higher returns to investors. These funds typically have one of two objectives: capital appreciation or income. Utility funds and ETFs invest in companies that provide utility services to cities and towns or to other entities that distribute power and water services locally.
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In other words, utilities are the public services everyday people rely on to maintain their homes. Dam construction and hydroelectric energy.Broadly speaking, it refers to companies that provide utility services relating to: To understand utility funds, it’s helpful to know what the utilities sector represents.