Volatility has returned to Wall Street as concerns over inflation and interest rate hikes have reignited fears among investors. Last week, all three major indexes retreated from their previous highs after the minutes of the Federal Open Market Committee’s (FOMC) Apr 30-May 1 policy meeting were released.

The minutes don’t paint a rosy picture, as Federal Reserve officials remain concerned that inflation isn’t declining sharply enough. This saw the Dow slipping 0.5% on May 23, recording its worst day in the month. The S&P 500 and the Nasdaq also slid 0.3% and 0.2%, respectively.

The minutes revealed that several Fed officials are in favor of further interest rate hikes, if required, to bring down inflation to its 2% target.

Wall Street has been on a rally this year despite rising inflation, with a solid first quarter before halting briefly in April. Inflation increased in the first three months of the year before slowing marginally in April.

The consumer price index (CPI) increased 0.3% sequentially in April and 3.4% year over year.  Core CPI, which strips volatile food and energy prices, increased 0.3% in April on a month-over-month basis, following a 0.4% increase in the first three months of the year.

Year over year, CPI rose 3.6% in April, recording the smallest monthly rise since April 2021.

This saw the rally resuming in May, with the Dow, the S&P 500 and the Nasdaq hitting new record highs.

However, the rally may be disrupted by fresh volatility over inflation and interest rate concerns. The minutes of the FOMC meeting have cast fresh doubt over the Federal Reserve’s monetary tightening campaign.

Also, hopes of multiple rate cuts this year are fast fading as the Federal Reserve hasn’t given a clear picture of its future course of action.

Given this scenario, an astute investor might consider investing in large-cap value funds to mitigate risks. Historically, large-cap funds have shown stability and are considered more reliable compared to mid- or small-cap funds.

Value funds, which usually include stocks priced below fundamental metrics like earnings, book value, and debt-to-equity ratios and often provide dividends, present attractive opportunities for profitable investments.

By investing in large-cap value funds, investors can benefit from the stability of large-cap stocks while taking advantage of the growth and income potential of value-oriented investments.

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).

Federated Hermes MDT Large Cap Value Svc (FSTKX Quick QuoteFSTKX - Free Report) fund's investment objective is to provide growth of income and capital. FSTKX pursues its investment objective by investing primarily in equity securities of companies that are generally leaders in their industries, are characterized by sound management and have the ability to finance expected growth.

FSTKX’s 3-year and 5-year annualized returns are 8.8% and 10.7%, respectively. Federated Hermes MDT Large Cap Value Svc fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.20%.

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 7.5% and 11.4%, respectively. Homestead Valuefund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.64%.

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

MFS Blended Research Value Equity A (BRUDX Quick QuoteBRUDX - Free Report) fund invests in stocks with a market cap of $10 billion or more, but whose share prices do not reflect their intrinsic value. BRUDX mainly invests in equities, has a long reputation for salutary performance, and yearly returns of 10.05% over the last five years.

BRUDX’s 3-year and 5-year annualized returns are 7.9% and 9.8%, respectively. MFS Blended Research Value Equity A fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.74%.

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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