Inflation surged in March to its highest level in nearly a year, driven largely by rising energy prices amid the conflict with Iran. While the increase was anticipated, it creates a significant dilemma for the Federal Reserve as it considers its next steps on monetary policy after pausing rate cuts earlier this year.
Even though core inflation — which excludes food and energy — saw only a modest uptick, ongoing geopolitical tensions are expected to keep markets unstable. Also, the fragile two-week ceasefire between the two nations already appears to be weakening, with no formal peace agreement in place.
Given this situation, investors may consider investing in large-cap value funds, such as VALIC Company I Systematic Value Fund VBCVX, Northern Income Equity NOIEX and Bridge Builder Large Cap Value Fund BBVLX.
Inflation Shoots Up Again
The consumer price index (CPI) rose 0.9% month over month in March, following February’s increase on 2.4%, the Commerce Department reported. This pushed the annual inflation rate to 3.3%, the highest since May 2024. The monthly gain is also the largest since June 2022. Although the figure matched analysts’ expectations, it complicates the Fed’s efforts, as inflation remains above its 2% target.
The surge in February was largely driven by a sharp 10.9% surge in energy prices. In contrast, core CPI rose just 0.2% month over month in March and 2.6% year over year, both slightly below estimates.
Stock markets were under pressure throughout March due to the U.S.-Iran tensions, though they began to recover last week after a temporary ceasefire and the reopening of the Strait of Hormuz, a crucial route for global oil shipments.
However, the situation remains unstable. The United States has since imposed a broad naval blockade on the Strait, following failed negotiations, keeping oil prices volatile and elevated near $100 per barrel.
With inflation rising, expectations for an interest rate cut have weakened, and some Federal Reserve officials are now even considering a rate hike. Oil prices are unlikely to settle down until a lasting peace agreement is reached between the two sides.
3 Best Choices
We've identified three large-cap value mutual funds that have given impressive annualized returns over 3-year and 5-year periods. These funds also hold a Zacks Mutual Fund Rank of #1 (Strong Buy), require an initial investment of no more than $5,000 and have a low expense ratio.
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 money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
VALIC Company I Systematic Value Fund primarily invests in equity securities of U.S. large- and mid-cap companies, selected on their inclusion on the Russell 1000 Value Index, which identifies companies with value characteristics such as lower price-to-book ratios and lower expected growth values.
VBCVX’s 3-year and 5-year annualized returns are 14.6% and 11%, respectively. VALIC Company I Systematic Value Fundhas a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.65, which is lower than its category average.
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.
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%, which is lower than its category average.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Bridge Builder Large Cap Value Fund aims for capital appreciation. BBVLX invests the majority of its assets in securities of large-capitalization companies and other instruments, such as certain investment companies, with economic characteristics that seek to track the performance of securities of large-capitalization companies.
Bridge Builder Large Cap Value Fund has 3-year and 5-year annualized returns of 12.9% and 9.1%, respectively. BBVLX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.22%, which is lower than its category average.
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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