Investing for Income

Fidelity Select Utilities Aims for Defense and Income

This fund bets big on utilities with good growth prospects.

Utilities stocks can be easy to overlook. The sector accounts for just 3% of the S&P 500, and the stocks, even in hot markets, are lauded mostly for being Steady Eddies. “People buy utilities for defense and income,” says Douglas Simmons, manager of Fidelity Select Utilities (symbol FSUTX). Historically, they’ve delivered. During the 2007–09 bear market, for instance, utilities in the S&P 500 lost an annualized 32.8%, compared with a 43% slide in the broad index. And over the past half-decade, utilities in the S&P 500 index sport an average yield of 3.4%—a percentage point higher than the five-year average for the broad-market benchmark. (Returns and other data are as of June 12.)

The defense hasn’t been quite as stout this year. Amid COVID-19 market panic, the sell-off in utilities was slightly steeper than in the S&P 500, driven by investor fears of prolonged declines in commercial and industrial demand. Despite strong trends on the residential side of the business, utilities were slower to recover as the market rebounded. The S&P 500 Utilities index has lost 8.4% so far this year; the broader index is off 5.0%.

But utilities are well situated to get back on track as the world emerges from the pandemic, says Simmons. He favors firms that can increase earnings and dividends at a 7% to 8.5% annual rate, compared with the 5% long-term industry average. The fastest-growing utilities are expanding and updating their infrastructure to produce renewable energy, says Simmons. This requires favorable regulation from state and local commissions that oversee utilities’ operations.

The portfolio holds a mix of best-in-class alternative energy players—such as NextEra Energy (NEE), based in Florida—and heretofore slow-growing firms whose regulatory landscape is poised to improve. Simmons says he added to positions in California utilities, such as San Diego–based Sempra Energy (SRE), in 2019, after the state passed ambitious updates to its renewable-energy goals.

The top 10 holdings in the 27-stock portfolio account for 72% of assets. Over time, big bets on favored names have paid off. The fund has beaten its average peer in eight of the past 10 calendar years and outpaced 83% of peers over the past decade.

Most Popular

12 Costs of Owning a Cat
how to save money

12 Costs of Owning a Cat

Housecats may be known for their aloofness and low-maintenance attitude, but they're not cheap. Here's what you can expect to spend if you plan on ado…
October 16, 2020
How to Pick the Right Medicare Plans for You
Healthy Living on a Budget

How to Pick the Right Medicare Plans for You

As you're signing up for Medicare, you must learn the basics of Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and even doug…
September 30, 2020
26 Things Home Buyers Will Hate About Your House
real estate

26 Things Home Buyers Will Hate About Your House

As a home seller, you don't want to let the small -- or big -- fixes around your house that have added up over the years sabotage your bottom line dur…
October 16, 2020

Recommended

Stock Market Today 10/19/20: Investors Lose Their Nerve as Relief Deadline Nears
stocks

Stock Market Today 10/19/20: Investors Lose Their Nerve as Relief Deadline Nears

Retail sales in September improved by more than expected and a consumer sentiment reading improved, providing the market with a tiny lift Friday.
October 19, 2020
10 Great Mutual Funds to Invest In for the Long Haul
Investing for Income

10 Great Mutual Funds to Invest In for the Long Haul

These top mutual funds to invest in for a long time horizon don't all have the same goals, but they share a number of advantages.
October 19, 2020
Kiplinger's Weekly Earnings Calendar
stocks

Kiplinger's Weekly Earnings Calendar

Check out our earnings calendar for the upcoming week, as well as our previews of the more noteworthy reports.
October 18, 2020
Stock Market Today 10/16/20: Cheerful Consumer Data Gives Stocks a Small Bump
stocks

Stock Market Today 10/16/20: Cheerful Consumer Data Gives Stocks a Small Bump

Retail sales in September improved by more than expected and a consumer sentiment reading improved, providing the market with a tiny lift Friday.
October 16, 2020