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The ongoing debt ceiling crisis in the United States may push the economy to a recession and unleash volatile conditions in the market. The U.S. government's ability to borrow money to meet its financial obligations is legally constrained by the debt ceiling set by Congress.

When the government reaches this limit, it must resort to extraordinary measures to continue funding its operations. Failure to raise the limit may lead to calamitous consequences. This crisis has the potential to trigger an economic recession, creating a downturn in the economy.

In such times of uncertainty, utility mutual funds present themselves as a safe haven. These funds invest in companies that provide electricity, gas and water. And demand for such products remains unaltered in the midst of recession-induced market mayhem.

Notably, among such companies is Southern Company which belongs to the electric power industry. The company deals with the generation, transmission and distribution of electricity. 

One key advantage of utility mutual funds is their ability to generate dividend income. This dividend income acts as a cushion during periods of market volatility, providing investors with a reliable income stream and reducing the overall impact of downturns.

Thus, from an investment standpoint, we have selected three utility mutual funds, which are expected to hedge your portfolio against any economic downturn and provide attractive returns. Mutual funds, in general, reduce transaction costs and diversify the portfolio without commission charges mostly associated with stock purchases.

These mutual funds, by the way, boast a Zacks Mutual Fund Rank #1 (Strong Buy)or 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio.

Franklin Utilities Fund (FKUTX - Free Report) invests most of its net assets in equity securities of public utility companies that provide electricity, natural gas, water and communications services to the public and companies that provide services to public utility companies. FKUTX advisors also invest a relatively small portion of their assets in companies operating in the utility industry.

John Kohli has been the lead manager of FKUTX since Dec 30, 1998. Most of the fund’s holdings were in companies like NextEra Energy (11.8%), Southern Co (4.3%), and Duke Energy (4.2%) as of Dec 31, 2022.

FKUTX’s 3-year and 5-year returns are 10.1% and 9.3%, respectively. The annual expense ratio is 0.72% compared to the category average of 0.94%. FKUTX has a Zacks Mutual Fund Rank #1.

Fidelity Advisor Utilities Fund (FUGIX - Free Report) seeks capital appreciation by investing the majority of its assets insecurities of companies deriving a majority of their revenues from their utility operations. FUGIX advisors choose to invest insecurities of foreign and domestic issuers.

Douglas Simmons has been the lead manager of FUGIX since Oct 2, 2006. Most of the fund’s holdings were in Nextera Energy (16.1%), Southern Co (11.6%) and Sempra (7.8%) as of Jan 31, 2023.

FUGIX’s 3-year and 5-year annualized returns are 12.5% and 9.3%, respectively. Its net expense ratio is 0.75% compared to the category average of 9.4%. FUGIX has a Zacks Mutual Fund Rank #1.

PGIM Jennison Utility Fund (PRUZX - Free Report) seeks capital appreciation by investing most of its net assets along with borrowings, if any, in equity or equity-related securities of utility companies. PRUZX advisors also invest in investment-grade debt securities in such companies as well.

Bobby Edemeka has been the lead manager of PRUZX since Mar 30, 2005. Most of the fund’s holdings were in Nextera Energy (15%), Cheniere Energy (5.8%) and Constellation Energy(5.4%)of Nov 30, 2022.

PRUZX’s 3-year and 5-year annualized returns are 10.2% and 9.5%, respectively. Its net expense ratio is 0.55% compared to the category average of 0.94%. PRUZX has a Zacks Mutual Fund Rank #2.

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