"I believe utility stocks can help provide valuable risk protection as part of a diversified portfolio, as my research shows that, historically, the sector tends to be the best performer in the S&P 500® during market corrections," says Douglas Simmons, portfolio manager of Fidelity® Select Utilities Portfolio (FSUTX).
He adds that when factoring in their yields, he hasn't seen utilities stocks this inexpensively priced compared with bonds going back to the 1950s. The average dividend yield for the sector in mid-March was 3.1%, compared with a 10-year bond of less than 1%," he notes.
Simmons believes market risks remain high heading into the spring of 2020, explaining that the spread of the coronavirus has potential to slow consumer activity in the US and globally.
For this reason, he believes owning defensive, income-oriented stocks, as opposed to just growth stocks, could make sense.
Attractive qualities for utilities stocks have historically included higher-than-average dividend yields, the lowest volatility of any sector, and no foreign-exchange risk.
"Utilities also are the least correlated with the economy, because people use electricity, water, and gas in both good times and bad," Simmons says.
Looking ahead, he thinks a lower-interest-rate environment also could benefit the sector.
Within the fund, Simmons maintains a focus on stocks trading at lower price/earnings multiples—especially ones he thinks could benefit from a constructive regulatory environment.
Learn more about this manager and his fund
Douglas Simmons is portfolio manager of Fidelity® Select Utilities Portfolio.
Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.
Past performance is no guarantee of future results.
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.
The utilities industries can be significantly affected by government regulation, financing difficulties, supply and demand of services or fuel, and natural resource conservation.
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.
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.
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