Consumer prices continued to climb in May as rising oil prices put fresh pressure on the economy, fueling concerns that growth could slow. Ongoing tensions in the Middle East have intensified the burden on consumers, while the Federal Reserve continues to face challenges in bringing inflation under control.

Given this backdrop, investors may consider investing in large-cap value funds, such as Federated Hermes MDT Large Cap Value Svc (FSTKX Quick QuoteFSTKX - Free Report) , Northern Income Equity (NOIEX Quick QuoteNOIEX - Free Report) and Dodge & Cox Stock I (DODGX Quick QuoteDODGX - Free Report) .

Inflation Climbs in May

The Consumer Price Index (CPI), a key measure of prices for goods and services throughout the economy, rose 0.5% in May from the previous month after increasing 0.6% in April, according to data released by the Commerce Department on Thursday. Compared with a year earlier, CPI advanced 4.2%, marking its largest annual increase since April 2023.

While both the monthly and yearly figures matched economists' expectations, inflation has accelerated notably over the past three months. Annual CPI growth was 3.3% in March before rising to 3.8% in April.

Core CPI, which excludes the more volatile food and energy costs, increased 0.2% in May from the prior month and was up 2.9% from a year ago. The monthly increase came in below economists' forecasts of 0.3%, while the annual reading was in line with estimates.

Inflation moved above the 4% threshold for the first time in three years as oil prices surged amid the continuing Middle East conflict. Shortly after the CPI report was released, President Donald Trump indicated that a peace agreement with Iran had been reached and that the war would end.

However, uncertainty remains because no official confirmation has been announced. Oil prices have climbed nearly 40% since the conflict began, helping drive inflation to its highest level in three years.

The Federal Reserve, which uses CPI data to monitor progress toward its 2% inflation target, stopped cutting interest rates last year. Investors had previously anticipated that the central bank might resume rate cuts during the second half of the year.

Those expectations have faded, as several Federal Reserve officials now believe additional rate hikes could be necessary if inflation remains above the 2% target. Higher interest rates would raise borrowing costs and could further pressure investors.

3 Best Choices

We've identified three large-cap value mutual funds that have given 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 Svcfund'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 24% and 13.5%, respectively. Federated Hermes MDT Large Cap Value Svc fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.98%.

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

Northern Income Equity 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 23.8% and 14.3%, 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.

Dodge & Cox Stock I 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 16.5% and 8.9%, respectively. Dodge & Cox Stock I fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.51%.

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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