3 Value Funds for Safe Returns Amid Decline in Consumer Sentiment

The bullish sentiment of Americans has been unexpectedly dampened as inflation once again climbed in January, flaring up fresh concerns over the economy’s future. A jump in January inflation dimmed hopes of a rate cut in May, with March already out of the picture.

The University of Michigan’s consumer sentiment survey came up with a reading of 76.9 in February, sharply lower than January’s reading of 79. The unexpected decline follows three straight months of rise in consumer sentiment.

Also, the consumers’ expectation index shows that prices will increase 3% at an annual rate over the next year from 2.9% in January.

Consumer price index (CPI) rose 3.1% year over year in January and 0.3% sequentially. Core CPI, which strips out the volatile food and energy prices, increased 3.9% on an annual basis in January and 0.4% month over month.

The Federal Reserve earlier dashed investors’ hopes after saying that the central bank would not be ready for the first of the multiple rate cuts in March as inflation remains above its 2% target.

Hopes dimmed further after the January inflation report as market participants now believe that the first rate cut won’t happen before the Federal Reserve’s June FOMC meeting. Higher rates led to increased borrowing costs, which do not bode well for the broader economy.

Given this scenario, a prudent investor may opt for investments in large-cap value funds as a risk management strategy. Large-cap stocks, known for their historical stability, are generally considered more reliable than mid- or small-cap stocks.

Additionally, value funds, which consist of stocks usually priced below fundamental metrics such as earnings, book value, and debt-to-equity ratios, present an attractive option. These funds often provide dividend payments, making them appealing to investors in search of lucrative investment opportunities.

3 Best Choices

We've identified three such large-cap value mutual funds that have demonstrated impressive annualized returns over both 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).

Shelton Equity Income Investor EQTIX fund seeks to achieve a high level of income and capital appreciation by investing primarily in income-producing U.S. equity securities. EQTIX invests primarily in securities that generate a relatively high level of dividend income and have the potential for capital appreciation. Shelton Equity Income Investor fund also invests at least 80% of its total assets in stocks.

EQTIX’s 3-year and 5-year annualized returns are 10.4% and 10.7%, respectively. Shelton Equity Income Investor fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.69%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Goldman Sachs U.S. Equity Dividend and Premium GSPAX fundseeks to maximize income and total return by investing the majority of its net assets in dividend-paying equity investments in large-cap U.S. companies with market-cap within the range of the S&P 500 Index at the time of investment.

GSPAX’s 3-year and 5-year annualized returns are 8.6% and 11.1%, respectively. Goldman Sachs U.S. Equity Dividend and Premium fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.03%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Northern Income Equity NOIEX 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 10.7% and 12.1%, 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.

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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.

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