The Fed raised interest rates by 25 basis points on Jul 26. The hike was widely expected. However, the Fed also said that more rate hikes could be coming as inflation remains elevated despite showing signs of easing.

Investors were hopeful that the July interest rate hike would possibly be the last before the Fed ends its monetary tightening cycle. However, hopes have faded once again, which could make markets volatile on growing concerns about an economic slowdown.

The Fed’s recent rate high came despite data indicating that inflation eased for the 12th consecutive month. The Consumer Price Index increased 3% in June after rising 4% in May. Inflation has now eased to 4.8% from a peak of 9.1%. However, it is still a lot higher than the Fed's 2% target. 

A resilient labor market that has seen solid job additions to the economy over the past several months is making Fed’s fight to curb inflation a tough one. Also, there has been a steady increase in personal income, and the unemployment level has once again fallen to 3.6%. This has been concerning the Fed, prompting it to resume interest rate hikes.

The Fed has increased interest rates for 11 times since March 2022. The recent increase in the benchmark interest rate has taken the federal funds rate to 5.25-5.50%, marking the highest level since March 2001.

This rise in interest rates has resulted in more expensive borrowing, increased costs for purchasing new cars or houses, higher credit card debt expenses, and a likely slowdown in economic growth.

Moreover, under the current circumstances, the first interest rate cut is not expected until 2025, although some market participants speculate it might occur in 2024.

This uncertainty has left investors scrambling for direction. In such a situation, opting for large-cap value funds can be a prudent strategy to minimize risk.

Large-cap equities have a longer track of success and are considered more reliable than mid- or small-cap stocks. Additionally, value funds, which consist of stocks trading at lower valuations relative to their fundamentals (such as earnings, book value, and debt-to-equity ratios) and often pay dividends, are gaining popularity among investors seeking favorable investment opportunities.

We have selected three large-cap value mutual funds that have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

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).

Our Choices

Bridge Builder Large Cap Value Fund (BBVLX Quick QuoteBBVLX - Free Report) 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 16.5% and 10.1%, respectively. BBVLX’s annual expense ratio of 0.23% is lower than the category average of 0.94%. BBVLX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

TIAA-CREF Large Cap Value Fund (TCLCX Quick QuoteTCLCX - Free Report) invests the majority of its assets in bonds, including different types of fixed-income securities. The fund’s portfolio is divided into two segments. The first segment holds more than 70% of fund’s assets that are invested in a wide variety of fixed-income securities and investment-grade bonds. The second segment has around 30% of its assets invested in fixed-income debt securities with special qualities.

TIAA-CREF Large Cap Value Fund has 3-year and 5-year annualized returns of 15.6% and 7.5%, respectively. TCLCX’s annual expense ratio of 0.49% is lower than the category average of 0.94%. TCLCX has a Zacks Mutual Fund Rank #1. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Invesco Comstock Fund Class Y (ACSDX Quick QuoteACSDX - Free Report) invests most of its assets along with borrowings, if any, in common stocks, derivatives and other instruments with similar economic characteristics, preferably in issues of large-cap companies. ACSDX advisors also invest a smaller portion of its net assets in real estate investment trusts.

Invesco Comstock Fund Class Y has 3-year and 5-year annualized returns of 20.7% and 9.1%, respectively. ACSDX’s annual expense ratio of 0.50% is lower than the category average of 0.94%. ACSDX has a Zacks Mutual Fund Rank #1. 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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