Wall Street has had a great year so far. However, inflation worries are back again, raising concerns over the timing of the Federal Reserve’s first rate cut. The Labor Department reported on Mar 12 that inflation rose again in February.

The consumer price index (CPI) rose 0.4% month over month in February after increasing 0.3% in January. Year over year, headline inflation rose 3.2% in February after increasing 3.1% in the prior month. Economists had expected CPI to increase 3.1% year over year in February. The month-over-month headline number came in line with the forecast.

Core CPI, which excludes the volatile energy and food prices, rose 0.4% sequentially in February and 3.8% from the year-ago level.

A jump in February CPI was primarily because of higher gasoline and housing costs, which included rents, accounting for over 60% of the monthly rise. Energy costs alone increased 2.3%.

Although inflation has declined sharply from its peak of 9.1% in June 2022, it remains quite above the Federal Reserve’s 2% target.

The Federal Reserve adopted an aggressive monetary tightening campaign, raising interest rates by 525 basis points since March 2022 before hinting at ending interest rate hikes in December 2023.

The central bank had also indicated multiple rate cuts this year as inflation eased steadily. In early January, investors were expecting the first rate cut in March. However, that is a distant dream now as the Federal Reserve said that a rate cut in March is unlikely as inflation is still elevated.

Market participants started hoping for a May rate cut but hopes have dimmed once again with inflation rising again. The first rate cut is now unlikely before the first half of the year. The current uncertainty around the timing of the rate cuts may lead to market volatility, which may continue for a longer period.

Given this scenario, a savvy investor may consider investing in large-cap value funds as a strategy to manage risks effectively. Large-cap stocks, known for their stability historically, are typically perceived as 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, while also offering dividend payments, present an appealing option for investors seeking lucrative investment prospects.

3 Best Choices

We've identified three large-cap value mutual funds that have demonstrated 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 (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, the 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 11.5% and 12.4%, respectively. Northern Income Equity fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.49%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Homestead Value (HOVLX Quick QuoteHOVLX - 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 11% and 12.2%, respectively. Homestead Valuefund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.62%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

T. Rowe Price Value (TRVLX Quick QuoteTRVLX - Free Report) fund seeks long-term capital appreciation. TRVLX invests at least 65% of total assets in common stocks the portfolio manager regards as undervalued. T. Rowe Price Value fund’s stock holdings consist primarily of large-company issues but also include smaller companies.

TRVLX’s 3-year and 5-year annualized returns are 8.7% and 11.5%, respectively. T. Rowe Price Value fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.71%.

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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