3 Utility Mutual Funds Set for 2025 Surge

The U.S. Utilities Sector Leads in 2025

The U.S. utilities sector has emerged as a strong performer in 2025, continuing its impressive track record over the past year. Historically considered a defensive investment due to its consistent demand, this sector has benefited from a combination of political stability, regulatory support, and favorable macroeconomic conditions that have boosted investor confidence and operational success.

One of the main reasons for the utilities sector's growth is the Federal Reserve's shift toward a more accommodative monetary policy. After a period of rapid interest rate hikes in 2022 and 2023 aimed at curbing inflation, the Fed began to pivot in late 2024. As inflation eased and economic data showed signs of moderation, rate cuts resumed, with more expected by the end of 2025. This environment of declining yields has made dividend-paying utility stocks more appealing to investors seeking income.

Government policies have also played a significant role. The previous administration’s continued focus on clean energy investments through programs backed by the Inflation Reduction Act (IRA) has injected billions into power grid modernization, renewable energy projects, and carbon reduction initiatives. Additionally, the Trump administration’s tariff war with trading partners inadvertently helped the sector by drawing investors to its defensive characteristics.

Macroeconomic resilience has ensured steady electricity demand. While manufacturing and exports have shown some softness, domestic consumption has remained robust, with commercial and residential electricity use continuing to rise. Extreme weather events linked to climate change, such as heatwaves, have further increased energy demand, particularly in regions reliant on air conditioning. Utilities have responded by improving reliability and resilience, earning customer trust and regulatory support. As a result, the S&P 500 Utilities Select Sector SPDR (XLU) has gained 15.7% year to date as of August 5, and 22% over the last 12 months.

Overall, a mix of falling interest rates, strong federal support for energy transition, political consistency, and stable demand has created a favorable environment for utilities in 2025. The sector’s reputation for reliability, combined with new opportunities in green energy, has allowed it not only to withstand economic fluctuations but to thrive.

Utility Mutual Funds Offer Stability and Growth

In this environment, utility mutual funds provide much-needed stability and growth potential. Astute investors should consider these funds at present. Mutual funds help reduce transaction costs and diversify portfolios without the commission charges often associated with stock purchases.

Three utility mutual funds have been selected based on their Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), positive three-year and five-year annualized returns, minimum initial investments within $5,000, and low expense ratios.

Cohen & Steers Global Infrastructure (CSUAX)

CSUAX primarily invests in U.S. and foreign common stocks and other equity securities issued by infrastructure companies, which include utilities, pipelines, toll roads, airports, railroads, marine ports, and telecommunications. Thuy Quynh Dang has led the fund since January 2022. Top holdings include NextEra Energy, TC Energy, and Union Pacific. CSUAX has a 3-year and 5-year annualized return of 6.8% and 8.4%, respectively, with a net expense ratio of 1.22%. It holds a Zacks Mutual Fund Rank #1.

American Century Utilities (BULIX)

BULIX focuses on equity securities of companies in the utilities industry. Mattia Bacciardi has managed the fund since May 2025. Key holdings are NextEra Energy, Duke Energy, and American Electric Power. BULIX offers a 3-year and 5-year annualized return of 9% and 9.8%, with a net expense ratio of 0.65%. It has a Zacks Mutual Fund Rank #2.

Fidelity Select Utilities (FSUTX)

FSUTX aims to achieve capital appreciation and current income by investing primarily in utilities and companies involved in utility operations. Pranay Kirpalani has led the fund since December 2024. Top holdings include NextEra Energy, Duke Energy, and Exelon. FSUTX has a 3-year and 5-year annualized return of 12.9% and 14.3%, with a net expense ratio of 0.66%. It carries a Zacks Mutual Fund Rank #2.

Investors looking for key mutual fund information can sign up for the Zacks' free Fund Newsletter, which delivers top news, analysis, and performance insights each week.