In 2000, while the major stock market averages went down, the utilities industry group posted a 50.5% gain. Yet utilities sector funds had an average gain of only 7.1%, according to Morningstar Inc., Chicago, while some utilities funds lost money.
Tip: Before you invest in a utilities fund you should know what types of stocks it’s likely to own.
Historically, utilities funds held companies that provided necessary items: electricity, gas and phone lines. Advantages: High yields. Many utilities, especially electric companies, pay relatively high yields to shareholders.
Recession resistance. Even in an economic downturn, people are still likely to pay their gas and electric and phone bills. Thus, utility stocks tend to hold up relatively well.
Therefore, utility stocks (and the funds that hold them) are appropriate for conservative, income-oriented investors-but only if you own funds that own traditional utilities. Many utilities funds now own telecommunications companies, a strategy that backfired in 2000.
If you want a safe haven in a down economy, look for the utilities funds that led the way last year: Franklin Utilities (800-342-5236), which gained nearly 42% last year, and Prudential Utility (800-225-1852), which returned just over 40%.
