Grab These 3 Large-Cap Value Funds as Consumer Sentiment Sinks
Americans aren’t as confident about the economy as they were at the beginning of the year. Sky-high inflation and concerns over another interest rate increase have been weighing on their sentiment. Many fear that another rate hike this year could further erode their purchasing power as the cost of goods and services continues to climb.
Consumer sentiment weakened again in September as concerns about an economic slowdown intensified. Financial markets have remained volatile through much of August and September, with investors expecting uncertainty to persist.
Given this backdrop, investors may consider investing in large-cap value funds, such as Northern Income Equity NOIEX, Vanguard Equity Income Fund VEIPX and Columbia Select Large Cap Value Fund Class A SLVAX.
Consumer Sentiment Weakens
The University of Michigan said its Consumer Sentiment Index fell to a final reading of 48.1 in September, down from 51.7 in August and marking a four-month low. The figure was slightly higher than the preliminary reading of 47.8, but sentiment remained significantly weaker overall.
The index has declined 15% since January, while measures of both short-term and long-term expectations also recorded notable decreases.
At the same time, consumers became more concerned about inflation. Their expectation for inflation over the next 12 months climbed to 4.6% in September from 4% in August. The five-year inflation outlook also edged higher, reaching 3.4% from 3.3% a month earlier.
Inflation has accelerated in large part because of higher oil prices following the outbreak of war between the United States and Iran in late February. Consumers' one-year inflation expectations stood at 3.4% in February, highlighting the sharp increase since then and the impact of the U.S.-Iran conflict.
The Federal Reserve has continued to grapple with elevated inflation and this month raised interest rates by 25 basis points, marking its first rate increase in more than three years. The move had been widely expected, although the central bank also indicated that another hike could come before the end of the year.
Investors are concerned that continued increases in oil prices could prolong market volatility. Although the United States and Iran have been making efforts toward a resolution and formal negotiations have begun, uncertainty remains. Another Federal Reserve rate increase could put additional pressure on consumer purchasing power at a time when households are already dealing with elevated prices.
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.
NOIEX’s 3-year and 5-year annualized returns are 21.5% and 13.5%, respectively. Northern Income Equity fund has a Zacks Rank #1 and an annual expense ratio of 0.48%, 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.
Vanguard Equity Income Fund seeks a high level of dividend income and long-term growth of income and capital. VEIPX invests in a diversified group of large and mid-capitalization stocks with above-average dividend yields and reasonable prospects for long-term price appreciation.
VEIPX’s 3-year and 5-year annualized returns are 17% and 11.4%, respectively. Vanguard Equity Income Fund has a Zacks Rank #1 and an annual expense ratio of 0.26%.
To see how this fund performed compared to its category, and other 1 and 2 (Buy) Ranked Mutual Funds, please click here.
Columbia Select Large Cap Value Fund Class A fund seeks long-term capital appreciation. SLVAX generally invests at least 80% of its net assets in the common stocks of value companies with a large market capitalization of $2 billion or more. Columbia Select Large Cap Value Fund Class A fund may invest up to 15% of its net assets in illiquid securities and up to 10% of its total assets in foreign securities.
SLVAX’s 3-year and 5-year annualized returns are 21.7% and 13.5%, respectively. Columbia Select Large Cap Value Fund Class A fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.82%, which is lower than the 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).
