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Senate Approves Tax Bill, Large-Cap Mutual Funds to Buy


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In a 51-49 vote, the Senate passed the new tax code by a narrow margin for the United States on Dec 1. This brings President Trump closer to tax reforms in the United Sates. Members of the GOP cleared a big hurdle after dissentient senators agreed to approve the Bill. Now that the Bill has cleared the Senate, lawmakers are seeking to settle disparities between Senate's version of the Bill and the one passed by the House last month, before it is presented to Trump.

A slash in the corporate tax rate from 35% to 20% and Trump's one-time tax repatriation mean that large-cap companies would greatly benefit from such policies. Under such conditions, it would be prudent to invest in large-cap mutual funds.

Highlights of Tax Bill

Though the Senate passed the Republican Tax Bill by a narrow margin, this victory takes Trump closer than ever to delivering on the "promise" that was the cornerstone of his campaign - a new U.S. tax code.

The Bill permanently slashes the corporate tax rate to 20%. Further, the tax repatriation provision allows big companies with global operations to bring back trillions of dollars held as cash reserve overseas. Finally, the Bill repeals the individual mandate of Obamacare in a bid to provide the citizens of the United States the freedom to choose from a variety of health plans and relieve them of the penalty for not having a health insurance.

Who Are the Likely Gainers?

A cut in domestic tax rates would mean that banks and big financial institutions that are weighed down by a hefty tax load would benefit greatly. Moreover, Trump's one-time tax repatriation policy is likely to improve the overall financial health of tech, drug and biotech companies. Such a tax holiday would allow large-cap corporations hoarding trillions of dollars held as cash reserve overseas to bring back profits for one-time tax.

Let us not forget that tech behemoths Apple, Alphabet, Microsoft, Cisco Systems, Inc. (CSCO) and Oracle (ORCL) hold 88% of their money overseas to avoid paying the 35% corporate tax rate on earnings. Thus, they are positioned to gain immensely under Trump's tax reduction plan. Companies like Hewlett Packard Enterprise Co (HPE) and QUALCOMM, Inc.'s (QCOM) earnings are also projected to rise around 20.8% and 10.5%, respectively, on a repatriation tax cut, per Strategas Research Partners. ( Read More )

Why Invest In Large-Cap Mutual Funds?

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money ).

Large-cap funds are ideal investment options for those seeking high returns that come with lower risk than small-cap and mid-cap funds. These funds have exposure to large-cap stocks, with a long-term performance history and assure more stability than what mid or small caps offer. Moreover, growth funds focus on realizing an appreciable amount of capital growth by investing in stocks of firms, the value of which is projected to rise over the long term. However, relatively higher tolerance to risk and the willingness to park funds for the longer term are necessary when investing in these securities.

4 Best Large-Cap Mutual Funds

Here, we have highlighted four large-cap mutual funds sporting a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three-year and YTD returns. Additionally, the minimum initial investment is within $5000 and net assets are above $50 million.

The Senate's permanent slashing of the corporate tax rate to 20% bodes well for financial corporations such as banks which bear the load of hefty domestic tax. Further, Trump's one-time tax-repatriation policy would enable tech companies as well as the drug and pharmaceutical companies hoarding huge cash reserves abroad to bring profits back home at a much cheaper rate. Finally, a reduced rate would leave drug companies with enough cash reserves to engage in mergers and acquisitions.

Under such economic and political conditions, there cannot be a better time to invest in large-cap mutual funds.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

American Century NT Growth G ACLTX seeks long-term capital growth. The fund normally invests in stocks of companies that the adviser believes will increase in value over time. The portfolio managers use a variety of analytical research tools and techniques to identify stocks of larger-sized companies that meet their investment criteria. Under normal market conditions, the fund's portfolio will primarily consist of securities of companies demonstrating business improvement.

ACLTX has a Zacks Rank #2 (Buy) and an annual expense ratio of 0.78%, which is below the category average of 1.12%. The fund has three-year and YTD returns of 12.2% and 29.2%, respectively.

American Funds Growth Fund of Amer A AGTHX seeks appreciation of capital. AGTHX invests heavily in common stocks of those companies that have high growth potential. The fund may invest nearly one-fourth of its assets in companies based in foreign nations. The fund has multiple managers.

AGTHX has a Zacks Rank #1 (Strong Buy) and an annual expense ratio of 0.64%, which is below the category average of 1.12%. The fund has three-year and YTD returns of 12.4% and 24.2%, respectively.

Commerce Growth CFGRX seeks growth of capital. CFGRX invests a minimum of 65% of its assets in common stocks of companies that witnessed lower-than-average price volatility in the past. The fund may also invest a major portion of its assets in the technology sector. The fund normally invests in common stocks issued by companies whose characteristics can be compared to those that are included on the Russell 1000 Growth Index.

CFGRX has a Zacks Rank #1 and an annual expense ratio of 0.82%, which is below the category average of 1.12%. The fund has three-year and YTD returns of 13.2% and 26.4%, respectively.

MassMutual Premier Disciplined Gr Svc DEIGX invests primarily in common stocks of growth-oriented companies. DEIGX is believed to maintain a portfolio that provides higher returns than the Russell 1000 Growth Index.

DEIGX has a Zacks Rank #1 and an annual expense ratio of 0.71%, which is below the category average of 1.12%. The fund has three-year and YTD returns of 12% and 26.9%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Mutual Funds
Referenced Symbols: ACLTX , DEIGX , CFGRX , AGTHX


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