Consumers are increasingly concerned about the state of the economy as uncertainty surrounding the U.S.-Iran conflict and rising inflation continue to weigh on their sentiment. In April, consumer confidence fell to a record low, driven in part by disruptions to shipping through the Strait of Hormuz, which pushed up oil prices and led to a broader rise in commodity costs over the past month.
Inflation also climbed in March to its highest level in nearly a year, weakening expectations that the Federal Reserve might cut interest rates anytime soon. In this environment, investors may consider investing in large-cap value funds, such as Putnam Large Cap Value A PEYAX, Northern Income Equity NOIEX and Dodge & Cox Stock I DODGX.
Consumer Sentiment Dips to All-Time Low
The University of Michigan reported that its Consumer Sentiment Index dropped to a final reading of 49.8 in April, marking an all-time low. Although this was slightly better than the preliminary reading of 47.6, the overall outlook remains weak.
The small improvement followed the announcement of a two-week ceasefire in the Iran conflict. However, the truce appears fragile, with stalled negotiations raising doubts about any near-term peace agreement.
Since the conflict began, global oil prices have jumped more than 30%. Shipping disruptions in the Strait of Hormuz have also driven up the cost of other important commodities, including fertilizers, petrochemicals, semiconductors and aluminum.
At the same time, consumers’ short-term inflation expectations rose to 4.7% in April from 3.8% the previous month, while long-term expectations increased to 3.5% from 3.2% in March.
Inflation continues to be a major concern for both households and policymakers. According to the Commerce Department, the consumer price index (CPI) increased 0.9% in March after rising 2.4% in February. This pushed the annual inflation rate to 3.3%, the highest level since May 2024.
Persistent inflation has made it difficult for the Federal Reserve to ease monetary policy, leading it to keep interest rates unchanged so far this year. Investors are now worried that rate cuts may not happen at all in the near term.
3 Best Choices
We have, thus, selected three mutual funds with significant exposure to the manufacturing sector, each carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Putnam Large Cap Value A fund seeks current income. Capital growth is a secondary objective when consistent with seeking current income. PEYAX invests mainly in common stocks of U.S. companies, with a focus on value stocks that offer the potential for current income and for capital growth.
PEYAX’s 3-year and 5-year annualized returns are 17.7% and 12.9%, respectively. Putnam Large Cap Value A fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.85%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Northern Income Equity fund seeks to provide a high level of current income with long-term capital appreciation as a secondary objective. NOIEX’s approach is to identify the securities of companies that generate high current yields and offer prospects for growth and possible capital appreciation. In pursuing its objective, the Northern Income Equity fund invests at least 65% of its total assets in a mix of income-producing equity securities, with no limit on the fund's ability to invest in non-investment grade fixed income and convertible debt securities.
NOIEX’s 3-year and 5-year annualized returns are 18.4% and 12.5%, respectively. Northern Income Equity fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.49%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Dodge & Cox Stock I fund seeks long-term growth of principal and income. A secondary objective is to achieve a reasonable current income. DODGX invests primarily in a broadly diversified portfolio of common stocks.
DODGX’s 3-year and 5-year annualized returns are 14% and 9.7%, respectively. Dodge & Cox Stock I fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.51%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
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This article originally published on Zacks Investment Research (zacks.com).
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