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3 Large-Cap Value Funds to Buy on Hotter-Than-Expected Inflation
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Markets have been volatile since the beginning of January after an upbeat end to 2023. Inflation declined sharply last year, which raised hopes of the Federal Reserve going for rate cuts this year. However, investors are still trying to gauge the size and time of the Federal Reserve’s interest rate cut, and the anticipation is making them jittery.
Amid this, investors’ confidence was further dampened after the latest data showed that inflation unexpectedly rose in December. The Consumer Price Index (CPI) rose 0.3% in December to close out the year, marking an increase from November’s rise of 0.1%.
Also, CPI rose 3.4% year over year in December, higher than November’s jump of 3.1%. Core CPI, which leaves out the volatile energy and food costs, declined 3.9% in December after increasing 4% in November but was higher than the consensus estimates of a rise of 3.8%.
A sharp decline in inflation in the latter half of 2023 saw the Fed leaving its benchmark interest rate steady in the current range of 5.25-5.50% after hiking it by 525 basis points since March 2022.
Also, Fed officials suggested ending its interest rate hike campaign and going for rate cuts in 2024. Markets are pricing in at least three rate cuts of 25 basis points each in 2024, which is in line with several Federal Reserve officials also.
However, the December CPI reading might make the Federal Reserve’s job difficult once again. Also, concerns are once again growing that the Federal Reserve might keep interest rates higher for a longer time. Market volatility could thus continue for a longer period.
Given this situation, a prudent investor may consider exploring large-cap value funds as a risk mitigation strategy. Large-cap stocks, with their proven history of success, are generally more dependable compared to mid- or small-cap stocks.
Also, value funds, comprising stocks typically priced below fundamental metrics like earnings, book value, and debt-to-equity ratios, and offering dividend payments, present an appealing option for investors seeking profitable 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).
Goldman Sachs U.S. Equity Dividend and Premium (GSPAX - Free Report) 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% and 12.3%, respectively. Goldman Sachs U.S. Equity Dividend and Premium fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.68%, which is below the category average of 1.11%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Dodge & Cox Stock I (DODGX - Free Report) fund seeks long-term growth of principal and income. A secondary objective is to achieve a reasonable current income. DODGX invests primarily in a broadly diversified portfolio of common stocks.
DODGX’s 3-year and 5-year annualized returns are 12.8% and 13.9%, respectively. Dodge & Cox Stock I fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.51%, which is below the category average of 0.94%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Homestead Value (HOVLX - Free Report) fund seeks capital growth over the long term and, secondarily, income. Under ordinary conditions, HOVLX invests at least 80% of its total assets in common stocks of established companies.
HOVLX’s 3-year and 5-year annualized returns are 10.1% and 12.9%, respectively. Homestead Valuefund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.62%, which is below the category average of 0.94%.
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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3 Large-Cap Value Funds to Buy on Hotter-Than-Expected Inflation
Markets have been volatile since the beginning of January after an upbeat end to 2023. Inflation declined sharply last year, which raised hopes of the Federal Reserve going for rate cuts this year. However, investors are still trying to gauge the size and time of the Federal Reserve’s interest rate cut, and the anticipation is making them jittery.
Amid this, investors’ confidence was further dampened after the latest data showed that inflation unexpectedly rose in December. The Consumer Price Index (CPI) rose 0.3% in December to close out the year, marking an increase from November’s rise of 0.1%.
Also, CPI rose 3.4% year over year in December, higher than November’s jump of 3.1%. Core CPI, which leaves out the volatile energy and food costs, declined 3.9% in December after increasing 4% in November but was higher than the consensus estimates of a rise of 3.8%.
A sharp decline in inflation in the latter half of 2023 saw the Fed leaving its benchmark interest rate steady in the current range of 5.25-5.50% after hiking it by 525 basis points since March 2022.
Also, Fed officials suggested ending its interest rate hike campaign and going for rate cuts in 2024. Markets are pricing in at least three rate cuts of 25 basis points each in 2024, which is in line with several Federal Reserve officials also.
However, the December CPI reading might make the Federal Reserve’s job difficult once again. Also, concerns are once again growing that the Federal Reserve might keep interest rates higher for a longer time. Market volatility could thus continue for a longer period.
Given this situation, a prudent investor may consider exploring large-cap value funds as a risk mitigation strategy. Large-cap stocks, with their proven history of success, are generally more dependable compared to mid- or small-cap stocks.
Also, value funds, comprising stocks typically priced below fundamental metrics like earnings, book value, and debt-to-equity ratios, and offering dividend payments, present an appealing option for investors seeking profitable 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).
Goldman Sachs U.S. Equity Dividend and Premium (GSPAX - Free Report) 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% and 12.3%, respectively. Goldman Sachs U.S. Equity Dividend and Premium fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.68%, which is below the category average of 1.11%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Dodge & Cox Stock I (DODGX - Free Report) fund seeks long-term growth of principal and income. A secondary objective is to achieve a reasonable current income. DODGX invests primarily in a broadly diversified portfolio of common stocks.
DODGX’s 3-year and 5-year annualized returns are 12.8% and 13.9%, respectively. Dodge & Cox Stock I fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.51%, which is below the category average of 0.94%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Homestead Value (HOVLX - Free Report) fund seeks capital growth over the long term and, secondarily, income. Under ordinary conditions, HOVLX invests at least 80% of its total assets in common stocks of established companies.
HOVLX’s 3-year and 5-year annualized returns are 10.1% and 12.9%, respectively. Homestead Valuefund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.62%, which is below the category average of 0.94%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Want key mutual fund info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>