U.S. consumer sentiment plunged to near-record lows in early October as concerns about the economy intensified. Living costs have climbed rapidly in recent months as oil prices surged amid the ongoing conflict in the Middle East.

Households are increasingly worried that inflation could accelerate further if the conflict persists, potentially putting additional pressure on economic activity. Financial markets have remained volatile over the past three months, while the possibility of another Federal Reserve rate hike this year could further weaken consumer confidence.

Given this backdrop, investors may consider investing in large-cap value funds, such as Vanguard Equity Income Fund (VEIPX Quick QuoteVEIPX - Free Report) , Columbia Select Large Cap Value Fund Class A (SLVAX Quick QuoteSLVAX - Free Report) and Federated Hermes MDT Large Cap Value Svc (FSTKX Quick QuoteFSTKX - Free Report) .

Consumer Sentiment Weakens Further

The University of Michigan's Consumer Sentiment Index fell to 46.3 in October from a final reading of 48.1 in September. The latest figure also came in below the consensus estimate of 47.8. Consumer confidence has now declined for three consecutive months.

October's reading brought sentiment close to the record low recorded in May.

The survey's measure of consumers' expectations for inflation over the next 12 months increased to 4.7% in October from 4.6% in September. Long-term inflation expectations, measured over five years, also edged higher, rising to 3.5% from 3.4% in the previous month.

The index measuring consumers' assessment of current economic conditions dropped to an all-time low of 44.7 in October compared with 50.9 in September.

The ongoing U.S.-Iran war has driven oil prices sharply higher, adding to inflationary pressures. Consequently, the prices of goods and services have risen substantially in recent months. Consumer sentiment remained depressed in October, particularly among lower-income households struggling to maintain their spending, according to the survey.

Persistent inflation continues to pose a significant challenge for the Federal Reserve. The central bank raised interest rates by 25 basis points in September, marking its first rate hike in three years. Inflation, however, remains well above the Fed's 2% target, and policymakers have signaled the possibility of another increase before the end of the year.

Market participants anticipate a further 25-basis-point rate hike at the Fed's December policy meeting. Concerns about rising borrowing costs are adding to the pressure on consumer confidence and could contribute to continued market volatility in the months ahead.

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).

Vanguard Equity Income Fund seeks a high level of dividend income and long-term growth of income and capital. VEIPX invests in a diversified group of large and mid-capitalization stocks with above-average dividend yields and reasonable prospects for long-term price appreciation. 

VEIPX’s 3-year and 5-year annualized returns are 17% and 11.4%, respectively. Vanguard Equity Income Fund has a Zacks Rank #1 and an annual expense ratio of 0.26%.

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

Columbia Select Large Cap Value Fund Class A fund seeks long-term capital appreciation. SLVAX generally invests at least 80% of its net assets in the common stocks of value companies with a large market capitalization of $2 billion or more. Columbia Select Large Cap Value Fund Class A fund may invest up to 15% of its net assets in illiquid securities and up to 10% of its total assets in foreign securities.

SLVAX’s 3-year and 5-year annualized returns are 21.7% and 13.5%, respectively. Columbia Select Large Cap Value Fund Class A fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.82%, which is lower than the category average.

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

Federated Hermes MDT Large Cap Value Svc fund's investment objective is to provide growth of income and capital. FSTKX pursues its 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 15.1%, respectively. Federated Hermes MDT Large Cap Value Svc fund has a Zacks Rank #2 and an annual expense ratio of 0.99%.

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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