Concerns over rising inflation, triggered by the ongoing conflict with Iran and the sharp jump in global oil prices, are continuing to weigh on consumer confidence, which weakened further in May. Consumers remain uneasy about the labor market and uncertain about the overall health of the economy, leading to growing pessimism.
At the same time, several Federal Reserve officials believe interest rates may need to stay elevated if inflation remains stubbornly high.
In such a turbulent economic climate, it would be safe for investors to opt for large-cap value funds to safeguard their investments. Three such funds are Northern Income Equity NOIEX, Putnam Large Cap Value A PEYAX and VALIC Company I Systematic Value Fund VBCVX.
Consumer Confidence Drops
Consumer confidence slipped in May, according to data released on Tuesday by The Conference Board. The index fell to 93.1 from an upwardly revised 93.8 in April. Optimism had briefly improved last month after President Donald Trump announced a ceasefire, raising hopes that the Iran conflict could ease soon. However, negotiations have since stalled, with no clear resolution in sight.
Gasoline prices have climbed nearly 40% since the conflict began, adding significant pressure on inflation. Earlier data from the Bureau of Labor Statistics showed that the consumer price index (CPI) rose 0.6% in April after increasing 0.9% in March. On an annual basis, CPI advanced 3.8%, marking its highest reading since May 2023.
Core CPI, which excludes food and energy prices, increased 0.4% month over month and 2.8% year over year. Meanwhile, the latest consumer sentiment survey from the University of Michigan showed confidence dropping sharply, with the sentiment index falling to 44.8 in May — the weakest level since the survey began in 1952.
Consumers have also been cutting down on spending. The Federal Reserve kept interest rates unchanged in its current range of 3.5-3.75%, and several investors expect rates to remain steady until 2027. Still, minutes from the Fed’s most recent FOMC meeting revealed that some policymakers believe additional rate hikes may be necessary if inflation stays above the central bank’s 2% target.
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).
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 21.4% and 13.5%, 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.
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 capital growth.
PEYAX’s 3-year and 5-year annualized returns are 19.5% and 13.4%, 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.
VALIC Company I Systematic Value Fund primarily invests in equity securities of U.S. large- and mid-cap companies, selected on their inclusion in 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 17.1% and 11.3%, respectively. VALIC Company I Systematic Value Fundhas a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.65.
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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