Americans are feeling slightly more optimistic about the economy after tensions between the United States and Iran temporarily eased. Although oil prices have declined sharply in recent weeks, uncertainty surrounding the conflict remains.
Consumer sentiment improved modestly in June but is still hovering near historically low levels. At the same time, the Federal Reserve continues to grapple with elevated inflation, making another interest rate increase increasingly likely.
Given this backdrop, investors may consider investing in large-cap value funds, such as Northern Income Equity (NOIEX – Free Report) , Federated Hermes MDT Large Cap Value Svc (FSTKX – Free Report) and Dodge & Cox Stock I (DODGX – Free Report) .
Consumer Confidence Shows Marginal Improvement
The Conference Board reported earlier this week that the consumer confidence index edged up to 91.2 in June from a downwardly revised 90.6 in May. Meanwhile, the University of Michigan’s Surveys of Consumers reported that its consumer sentiment index climbed to a final reading of 49.5 in June from 44.8 the previous month, slightly above the preliminary estimate of 48.9.
The modest improvement comes after a temporary memorandum of understanding was reached between the United States and Iran in mid-June to ease hostilities in the Middle East. The agreement helped push oil prices down from record highs, providing some relief to consumers. However, tensions have not fully subsided, as negotiations between the two countries continue.
Surging oil prices drove inflation to its highest level in three years, increasing the cost of goods across the economy, days after the U.S.-Iran war broke out in late February. Although energy prices have retreated, consumers remain concerned that the inflationary effects will continue for some time.
Confidence has also been weighed down by a weakening labor market outlook. Survey responses indicate that more households believe jobs are becoming harder to find, with that measure reaching its highest level in five and a half years.
Recent labor market data have reinforced those concerns. ADP reported that private-sector employers added 98,000 jobs in June, down from 122,000 in May and below economists’ expectations of 110,000 new positions.
Persistently high inflation has further complicated the Federal Reserve’s policy decisions, and financial markets are now anticipating a 25-basis-point interest rate increase before the end of the year.
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).
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.
Federated Hermes MDT Large Cap Value Svc 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 24% and 13.5%, respectively. Federated Hermes MDT Large Cap Value Svc fund has a Zacks Mutual Fund Rank #1 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.
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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