In 2025, the U.S. utilities sector has emerged as one of Wall Street’s strongest performers, buoyed by powerful structural drivers. The most significant factor has been the surge in electricity demand, fueled by the rapid expansion of data centers, artificial intelligence (AI) workloads, electric vehicles and domestic manufacturing. According to the U.S. Energy Information Administration, power consumption is expected to reach record highs in 2025 and 2026 as AI infrastructure and electrification continue to reshape energy usage.
This rising demand has transformed utilities from slow-growth, defensive businesses into critical elements of the modern economy. Companies are investing heavily in expanding and modernizing their grids, building new transmission lines, adding energy storage and accelerating the shift toward cleaner generation. Supportive government policies have added further momentum, with incentives from the Inflation Reduction Act and federal infrastructure initiatives helping fund modernization projects and streamline permitting processes.
For investors, the sector offers stability and growth potential. As interest rates show signs of easing, high-dividend utility stocks have become more attractive relative to bonds. Their regulated business models also provide a defensive cushion against broader market volatility.
Nonetheless, challenges remain. Utilities must navigate regulatory oversight, political scrutiny over rate hikes and the complexities of executing massive infrastructure projects amid rising capital costs. Even so, in 2025, the market has rewarded those utilities that have successfully positioned themselves at the crossroads of technological transformation, sustainable energy and dependable cash generation. As of Sept. 30, the S&P 500 Utilities Select Sector SPDR (XLU) advanced 17.7% year to date, marking a solid period of growth in the sector.
In this environment, utility mutual funds provide much-needed stability and growth potential. Hence, astute investors should consider such funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected three utility mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns and minimum initial investments within $5000, and carry a low expense ratio.