Back to top

4 Mutual Funds to Tap U.S. Equity Market Optimism

Read MoreHide Full Article

The American financial market has witnessed a rebound in stock price performances since December on the back of a number of macroeconomic tailwinds. Fed’s decision to leave rates unchanged this year and investor optimism over an imminent closure to U.S.-China trade negotiations in the near future boosted investments.

The broader equity market’s performance in recent weeks and the aforementioned factors make it ideal for investors to put capital in U.S. equity mutual funds at present.

Fed’s No-Rate-Rise Scenario Appears Encouraging

The Federal Reserve’s decision in its January meeting to leave its benchmark interest rate unchanged in 2019 came as a huge relief for U.S. equity markets. The current Fed rates of 2.25-2.50% are likely to remain in place.

The Fed’s patient approach to raising rates is attributed to checked core inflation, its primary inflation measuring gauge, which is expected to remain unperturbed despite the strong labor market. The Core Personal Consumption Expenditures index (which excludes food and energy), remained unchangedin December at 1.9%, below the Fed’s long-term inflation target of 2%.

The current no-rate-rise scenario is good for businesses because it will keep the rate of borrowing steady in the near future. This would, in turn, boost the companies’ earnings. As companies register growth in earnings, stock price performances could improve further, making it ideal for investments in equities and equity funds. 

A U.S.-China Trade Deal Could Drive Markets Higher

A nearing resolution to the ongoing trade war between the world’s two largest economies is one of the major driving factors behind the renewed buying interest in investors.

According to a Bloomberg report, U.S. officials are reportedly preparing a 150-page trade agreement that President Donald Trump and the Chinese president Xi Jinping could sign during their summit in Florida this month. In addition, this week’s reports of China offering to lower tariffs on American auto, farm, chemical and other goods as part of the trade deal also affected market sentiment, inducing optimism over a favorable trade agreement.

The S&P 500 index has gained 11.8% on a year-to-date basis, which roughly reflects the 90-day period United States and China observed a ceasefire in terms of further imposition of tariffs on each other’s goods.

The broader index’s movement, despite the federal shutdown, is also indicative of investor optimism and behavior as they hurried to buy stocks expecting a trade deal in the near term. Therefore the possible announcement of a favorable trade deal this month could witness financial markets marching higher.

4 Funds to Buy Today

We have selected a couple of U.S. equity mutual funds you could consider adding to your portfolio. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

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 Morgan Growth Inv (VMRGX - Free Report) seeks long-term capital growth by primarily investing in stocks of large-cap and mid-cap American companies whose earnings and revenues are anticipated to grow faster than the average company in the market. VMRGX has multiple investment advisors.

This Sector – Large Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VMRGXhas an annual expense ratio of 0.37%, which is below the category average of 1.07%. The fund has three and five-year returns of 15.8% and 11.9%, respectively.The minimum initial investment for VMRGXis $3000.

Thrivent Large Cap Value A (AAUTX - Free Report) aims for long-term capital growth by investing the majority of its assets in equity securities of large domestic and foreign companies. AAUTX usually invests in companies that have a market capitalization of $8 billion or more.

This Sector – Large Cap Value product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

AAUTXhas an annual expense ratio of 0.89%, which is below the category average of 1.00%. The fund has three and five-year returns of 12.6% and 7.6%, respectively.The minimum initial investment for AAUTX is $2000.

Nationwide Dynamic US Growth A (NMFAX - Free Report) seeks long-term capital appreciation by investing the majority of its assets in common stocks of U.S. companies included on the S&P 500 index. The fund aims to offer its investors with long-term capital growth by outperforming the S&P 500 index over a full market cycle at the same time maintaining parallel levels of market risks as the index.

This Sector – Large Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

NMFAXhas an annual expense ratio of 0.94%, which is below the category average of 0.95%. The fund has three and five-year returns of 14% and 11.2%, respectively.The minimum initial investment for NMFAX is $2000.

American Funds AMCAP R4 (RAFEX - Free Report) aims for long-term capital appreciation by investing in common stocks of American companies that have potential for good long-term growth. The fund follows an investment methodology that aims to invest in attractively valued companies offering long-term investment prospects.

This Sector – Large Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

RAFEXhas an annual expense ratio of 0.71%, which is below the category average of 1.07%. The fund has three and five-year returns of 14.4% and 10%, respectively.The minimum initial investment for RAFEX is $250.

Want key mutual fund info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>



More from Zacks Mutual Fund Commentary

You May Like