Energy and natural resource funds attained the highest average return for the second quarter, with a mean of 19.05% -- but the time may be ripe for utility funds to outperform in the months ahead.

The best-returning fund for the quarter was the

BlackRock Global Resources Fund

(SSGRX) - Get Report

, returning 45.5% for the quarter and 12.52% for the month of June.

The top holdings in this fund include

Consol Energy

(CNX) - Get Report

,

Massey Energy

( MEE),

Arch Coal

(ACI)

,

Plains Exploration & Production

(PXP)

and

Newfield Exploration

(NFX)

.

However, those investors who expect the bull market in energy and natural resources to peter out, and predict further weakening in the domestic economy, may do well to start considering utility funds as investment options into the third quarter.

The average three-month return for this sector was 6.02%, and the best-performing funds for the quarter were the

Profunds Utility UltraSector Fund

(UTPIX) - Get Report

, the

Jennison Utility Fund

(PRUAX) - Get Report

and the

Fidelity Advantage Utilities Fund

(FUGAX) - Get Report

. These funds returned 11.85%, 9.16% and 8.78% for the three months, respectively.

There is an overlap of stocks held by these funds, but the big difference in structure is the concentration of assets in the top-10 holdings.

The Fidelity fund is highly concentrated, with 68% of its assets in its top 10 holdings, 30% of which is in just three stocks:

Exelon

(EXC) - Get Report

,

PPL

(PPL) - Get Report

and

FPL Group

(FPL) - Get Report

.

One more key difference is that the sector allocation for the Profunds and Fidelity Funds is heavily skewed (80% of assets) toward the electrical utilities sector, whereas the Jennison Fund is only 36% exposed to electrical companies, 18% to telecommunications and 10% to oil and gas.

I would recommend that investors fearing a recession favor funds exposed to electrical utilities, as the revenue stream from these companies is likely to be more stable (i.e., contract less), should the U.S. economy slow further -- which is what appears to be the case.

Other stocks held by these utility funds include

Entergy

(ETR) - Get Report

,

FirstEnergy

(FE) - Get Report

,

Public Service Enterprises Group

(PEG) - Get Report

and

Sempra Energy

(SRE) - Get Report

.

Sam Patel, CFA, is the manager of mutual fund research for the TheStreet.com Ratings.

In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

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