“Electrification of everything” sparks demand for utilities

As demand grows for greener energy options to combat climate change, consumers and businesses have increasingly turned to electricity to power vehicles, homes, workplaces, and factories, in turn sparking growth for electric utilities, says Fidelity Portfolio Manager Douglas Simmons.

“Electric utilities are among the prime beneficiaries of the world’s nascent transition from fossil fuels to renewable energy resources,” says Simmons, who manages Fidelity® Select Utilities Portfolio (FSUTX). “This evolution is the best thing to happen to utilities since the advent of air conditioning.”

In helming the sector-focused fund since 2006, Simmons has long emphasized shares of companies focused on developing the renewable-energy segments of their businesses. He favors companies with solid fundamentals and high dividend growth that are often undervalued by the market. And opportunities in this space abound right now, he acknowledges, following the worst-ever performance of utilities stocks versus the S&P 500® in 2023.

Electric vehicles, heating systems, and factories that are run off electricity generated by wind, solar, and nuclear power have begun to proliferate in the marketplace, fueling a trend Simmons and others refer to as the “electrification of everything.”

According to Simmons, growth in sales of electric vehicles offers an early illustration of the trend, which he expects to expand to other categories, such as home heating. In 2022, 10 million EVs were sold globally, and that figure grew 46% in 2023.

To provide perspective on the scale of this growth, in 2020 EVs represented about 4% of total car sales, Fidelity research shows. In 2022, EV sales soared to 14% of overall sales, and that percentage climbed to 19% in 2023.

“As the world looks to decarbonize as many facets as possible of everyday life with clean energy, I am trying to position the fund to benefit from this long-term trend,” says Simmons.

In line with this theme, the fund has owned three California-based electric utilities—PG&E (PCG), Edison International (EIX), and Sempra (SRE)—as well as Maryland-based nuclear energy provider Constellation Energy (CEG). Each of these utilities was among the fund’s largest holdings as of January 31.

“All are well-positioned for surging electric demand as the world increasingly turns to greener options to combat climate change,” says Simmons. "And I believe we'll see solid profit growth here as these firms continue to build out their capabilities to meet rising demand.”

He sees each as beneficiaries of onshoring and the U.S. Inflation Reduction Act of 2022, which prompts the government to incentivize and invest heavily in efforts to promote clean energy.

“There has been a real inflection point in U.S. power demand that we have not seen in two decades,” says Simmons. “Utilities are the major beneficiary of this demand, and they are at the epicenter of the shift in the U.S. away from coal and toward renewable energy sources,” Simmons says. “Looking out several years, this energy transition has the potential to fuel faster earnings growth for certain utilities over an extended period.”

For specific fund information, including full holdings, please click on the fund trading symbol above.

Doug Simmons
Douglas Simmons
Portfolio Manager

Douglas Simmons is a portfolio manager in the Equity division at Fidelity Investments.

In this role, Mr. Simmons manages Fidelity Telecom and Utilities Fund, Fidelity Select Utilities Portfolio, Fidelity VIP Utilities Portfolio, and the Fidelity Advisor Utilities Fund. As a member of Fidelity’s Stock Selector Large Cap Group, he is also responsible for managing the utilities sleeves for various diversified sector-based portfolios.

Prior to assuming his current responsibilities in September 2005, Mr. Simmons served as a utilities analyst covering the electric and gas utility stocks.

Before joining Fidelity in 2003, Mr. Simmons worked as a financial analyst at the private equity firm Hicks, Muse, Tate & Furst. Previously, Mr. Simmons was an investment banking analyst at Morgan Stanley. He has been in the financial industry since 1997.

Mr. Simmons earned his bachelor of business administration degree in finance from the University of Texas at Austin, where he graduated with highest honors, and his master of business administration degree from Harvard Business School.

Interested in mutual funds?

Choose your criteria and get fund picks from Fidelity or independent experts.

More to explore

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

Growth stocks can perform differently from the market as a whole and other types of stocks, and can be more volatile than other types of stocks.

Value stocks can perform differently from other types of stocks, and can continue to be undervalued by the market for long periods of time.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.

The municipal market can be affected by adverse tax, legislative, or political changes, and by the financial condition of the issuers of municipal securities.

The securities of smaller, less well known companies can be more volatile than those of larger companies.

Some funds may use investment strategies involving derivatives and other transactions that may have a leveraging effect on the fund. Leverage can increase market exposure and magnify investment risk. Investors should be aware that there is no assurance that a fund's use of such strategies will succeed.

Leverage can magnify the impact of adverse issuer, political, regulatory, market, or economic developments on a company. In the event of bankruptcy, a company's creditors take precedence over its stockholders.

Changes in real estate values or economic conditions can have a positive or negative effect on issuers in the real estate industry.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation, and evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

Past performance is no guarantee of future results.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917