Inflation increased more than expected in January, rattling Wall Street, which started the year on a high. The Wall Street rally came to a halt on Jan 12 after fresh inflation data showed that higher shelter costs and broader price pressures weighed on the inflation reading.

The Labor Department reported that the consumer price index (CPI) rose 0.3% sequentially in January and 3.1% from the year-ago levels, after rising 3.4% in December. Economists had expected CPI to rise 0.2% monthly and 2.9% annually.

Although the annual rise in CPI came in lower than last month, it is still a lot higher than the Fed’s 2% target.

Core CPI, which excludes the volatile food and energy costs, increased 0.4% on a month-over-month basis in January, higher than the consensus estimate of 0.3%. Year-over-year core CPI jumped 3.9% year, higher than economists’ expectations of a rise of 3.7%.

The sudden jump in inflation rattled Wall Street, with the Dow and S&P 500 each ending 1.4% lower, while the Nasdaq dropped 1.8%. Investors’ confidence was shaken as hopes of a rate cut in March dimmed further.

The Federal Reserve earlier hinted at multiple rate cuts this year. Investors were expecting a quarter percentage point rate cut in March. However, hopes have now faded considerably and market participants are presently unsure about the timing of the Fed’s first rate cut.

The current uncertainty surrounding the Fed’s future course of action may lead to volatility in markets, which can continue for a longer period.

Given this situation, an astute investor might contemplate investing in large-cap value funds as a strategy to mitigate risks. Large-cap stocks, known for their historical stability, are generally considered more reliable than mid- or small-cap stocks.

Also, value funds, consisting of stocks usually priced below fundamental metrics such as earnings, book value, and debt-to-equity ratios, while providing dividend payments, present an attractive choice 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).

AB Equity Income A (AUIAX Quick QuoteAUIAX - Free Report) fund invests primarily in the equity and fixed-income securities of companies in the utilities industry. AUIAX’s investment strategy has four major thrusts: electric utilities that have favorable regulatory environments and strong managements; telecommunications companies with strong strategic positions, cable television and wireless companies; and natural gas and water utility companies.

AUIAX’s 3-year and 5-year annualized returns are 12.5% and 11.1%, respectively. AB Equity Income A fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.72%, 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.

Shelton Equity Income Investor (EQTIX Quick QuoteEQTIX - Free Report) fund seeks to achieve a high level of income and capital appreciation by investing primarily in income-producing U.S. equity securities. EQTIX invests primarily in securities, which generate a relatively high level of dividend income and have the potential for capital appreciation. Shelton Equity Income Investor fund also invests at least 80% of its total assets in stocks.

EQTIX’s 3-year and 5-year annualized returns are 10.4% and 10.7%, respectively. Shelton Equity Income Investor fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.69%, 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.

Northern Income Equity (NOIEX Quick QuoteNOIEX - Free Report) 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, 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 10.7% and 12.1%, respectively. Northern Income Equity fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.49%, 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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