Image Source: Unsplash

Inflation, which was showing signs of easing at the end of 2022, has once again been on the rise to begin this year. A resilient labor market, rising income and high spending have made things worse. This has once again raised concerns about the Fed sticking to its steep rate-hike policy in its upcoming meetings.

Investors looking for income in this situation can consider large-cap value funds since they guarantee handsome returns once the prevailing volatility subsides and markets recover from their lows. Thus, funds like Bridge Builder Large Cap Value Fund (BBVLX - Free Report), American Funds American Mutual Fund Class F-1 (AMFFX - Free Report) andCommerce Value Fund (CFVLX - Free Report) are likely to benefit in the near term.

Inflation Soars, Making Markets Volatile

Be it for housing, food, or fuel, prices have been skyrocketing again, after showing signs of cooling at the end of 2022. The personal consumption expenditures (PCE) price index, the Fed's primary monetary policy indicator, increased at an alarming rate of 0.6% in January after rising 0.2% in December.

Through January, the PCE index rose 5.4% over 12 months.

More significantly, core PCE, which excludes volatile food and energy prices, increased 0.6% in January, after rising 0.4% in December. The PCE index increased 4.7% year over year in January.

Earlier this month, the Labor Department announced that the consumer price index (CPI) climbed 0.5% in January. On a year-over-year basis, CPI rose 6.4%. Economists had expected a 0.4% monthly increase and a 6.2% rise on an annualized basis.

Core CPI, which excludes the volatile food and energy costs, rose 0.4% in January and 5.6% year over year.

Rising inflation has once again ignited fears among investors that the Fed may continue with its interest rate hike for a longer period than expected. Central bank officials may have to stick to their hawkish stance going forward since they are keen to stop the cost of basic goods and services from rising.

According to the CME's FedWatch tool, market analysts now expect a 25-basis point interest rate hike in both May and June as a result of the higher-than-expected increase in January's inflation.

This has once again unsettled markets and volatility is likely to persist for some time or at least till inflation doesn’t ease to the Fed’s target range.

Investors should thus bet on large-cap value funds in order to minimize risk. Large-cap equities have a longer track record of success and are more reliable compared to mid- or small-cap stocks.

Value funds, which include stocks that typically trade for less than their fundamentals (such as earnings, book value, and debt-to-equity ratios), as well as paying dividends, are popular among investors looking for a good deal.

Our Choices

We have selected three such large-cap value mutual funds that have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

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

Bridge Builder Large Cap Value Fund aims for capital appreciation. BBVLX invests the majority of its assets in securities of large-capitalization companies and other instruments, such as certain investment companies, with economic characteristics that seek to track the performance of securities of large-capitalization companies.

Bridge Builder Large Cap Value Fund has 3-year and 5-year annualized returns of 11.6% and 8.8%, respectively. The annual expense ratio of 0.24% is lower than the category average of 0.94%. BBVLX has a Zacks Mutual Fund Rank #2. 

American Funds American Mutual Fund Class F-1 invests the majority of its investable assets in common stocks of companies that are expected to contribute to the growth of the American economy and have stable dividends.

AMFFX’s 3-year and 5-year annualized returns are 8.8% and 7.7%, respectively. The annual expense ratio of 0.38% is lower than the category average of 0.94%. American Funds American Mutual Fund Class F-1 has a Zacks Mutual Fund Rank #1. 

Commerce Value Fund invests the majority of its investable assets in common stocks of companies. CFVLX typically invests in stocks within the Russell 1000 Value Index that promise stable dividends.

Commerce Value Fund has 3-year and 5-year annualized returns of 8.9% and 7.9%, respectively. The annual expense ratio of 0.67% is lower than the category average of 0.94%. CFVLX has a Zacks Mutual Fund Rank #1. 

More By This Author:

Kohl's Reports Q4 Loss, Misses Revenue Estimates
Lowe's Tops Q4 Earnings Estimates
Target Beats Q4 Earnings And Revenue Estimates