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4 High-Yield Mutual Funds to Buy as Inflation Softens

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After weeks of the sudden failure of Silicon Valley Bank, followed by Signature Bank and the takeover of Credit Suisse by its European rival UBS, Wall Street is still witnessing the aftershock of these events. Domestic inflation for the month of March came in at 5% year over year mostly driven by lower energy prices.

The consumer price index continues to move in a downward trajectory and is currently at the lowest point in the past two years. The Dow, the S&P 500 and the Nasdaq have gained 2.26%, 8.20% and 16.15%, respectively, so far this year.

Since getting control over inflation is the Fed’s primary target, and the current rate of inflation is more than double its ambition for 2% inflation over time, it is expected that the Fed will hike overnight interest rates in its next meeting before taking a pause. Over the past year, the Fed has raised the overnight interest rate from near zero to almost 5%.

This is the fastest ascent since the early 1980s. The question remains whether the Fed will be able to strike the right balance between the higher interest rate and inflation to make a soft landing for the economy. The Fed excepts higher interest rates to slow down business activity and cut down demand for labor.

Retail sales fell for two consecutive months and declined by 1% in March. This implies that Americans bought fewer cars, clothes and pieces of furniture. Manufacturing PMI dropped to 46.3%. Fed’s aggressive rate hike stance to fight inflation has increased the cost of borrowing and dented the pockets of the average Americans and businesses. However, the domestic labor market remained strong, adding more than 1 million jobs over the past three months and driving away unemployment.     

Amid adverse economic conditions, investors looking to diversify their portfolios and earn a regular income can invest in the below-mentioned dividend-paying mutual funds.

Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

We have, thus, selected four mutual funds that have a promising dividend yield, have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000, and carry a low expense ratio as compared to its category average.

Shelton Equity Income Fund (EQTIX - Free Report) invests most of its assets, along with borrowings, if any, in common stocks of domestic companies that payout relatively higher dividends within the industry and have the potential for capital appreciation. EQTIX advisors choose to invest in equity securities of medium and large-cap companies.

Stephen C. Rogers has been the lead manager of EQTIX since Dec 31, 2003, and most of the fund’s holdings were in companies like Microsoft (2.57%), Costco Wholesale (2.37%) and Procter & Gamble (2.36%) as of Nov 30, 2022.

EQTIX’s dividend yield is 7.6%. The fund’s 3-year and 5-year annualized returns are 14.5% and 6.9%, respectively. The annual expense ratio of 0.72% is lower than the category average of 1.11%. EQTIX 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 SteelPath MLP Select 40 Fund (MLPFX - Free Report) invests most of its assets, along with borrowings, if any, in master limited partnership issues that are engaged in industries like transportation, storage, processing, refining, marketing, exploration, production, and mining of minerals and natural resources. MLPFX advisors may also invest in derivatives and other instruments with similar economic characteristics.

Stuart Cartner has been the lead manager of MLPFX since Mar 31, 2010, and most of the fund’s holdings were in companies like Energy Transfer (7.43%), MPLX LP (7.07%) and Enlink Midstream (5.38%) as of Nov 30, 2022.

MLPFX’s dividend yield is 6.9%. The fund’s 3-year and 5-year annualized returns are 47.0% and 6.8%, respectively. The annual expense ratio of 1.15% is lower than the category average of 1.56%. MLPFX has a Zacks Mutual Fund Rank #2.

BlackRock High Equity Income Fund (BMEAX - Free Report) invests most of its assets along with borrowings, if any, in equity securities and equity-related instruments primarily of large-cap companies. BMEAX advisors also invest half of its net assets in equity-linked notes that provide exposure to equity securities and covered call options.

Tony DeSpirito has been the lead manager of BMEAX since Jun 12, 2017, and most of the fund’s holdings were in companies like BP PLC (2.34%), Wells Fargo (2.24%) and Citigroup (1.77%) as of Nov 30, 2022.

BMEAX’s dividend yield is 6.3%. The fund’s 3-year and 5-year annualized returns are 17.8% and 7.1%, respectively. The annual expense ratio of 1.10% is almost in line with the category average of 1.11%. BMEAX has a Zacks Mutual Fund Rank #2.

Principal Diversified Real Asset Fund (PDARX - Free Report) invests most of its assets, along with borrowings, if any, in investments related to real assets and real asset companies that are expected to perform well in a rising or high-inflationary period. PDARX advisors generally invest in infrastructure, natural resources, commodities, real estate, inflation-indexed bonds, and floating-rate debt.

Jessica S. Bush has been the lead manager of PDARX since Mar 7, 2014, and most of the fund’s holdings were in companies like Transurban Group (1.32%), National Grid Plc (1.31%) and SSE Plc (1.30%) as of Nov 30, 2022.

PDARX’s dividend yield is 6.1%. The fund’s 3-year and 5-year annualized returns are 13.0% and 4.5%, respectively. The annual expense ratio of 0.77% is almost in line with the category average of 1.00%. PDARX has a Zacks Mutual Fund Rank #2.

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