Wall Street has remained volatile in October despite the Federal Reserve deciding not to increase interest rates in its September FOMC meeting. Last week, treasury yields neared 5% as investors are still unable to gauge the central bank’s next move with interest rates.
Also, inflation increased marginally in September, which once again raised fears of a slowing economy. Given this situation, investing in large-cap funds like Dodge & Cox Stock I (DODGX – Free Report) , Invesco Comstock A (ACSTX – Free Report) and Shelton Equity Income Fund (EQTIX – Free Report) would be safe bets.
Wall Street Remains Volatile
The Federal Reserve kept its benchmark interest rate unchanged in its September meeting to the current range of 5.25-5.5%. However, Fed officials didn’t give a clear picture of its next course of action.
Fed Chair Jerome Powell said after the FOMC meeting that inflation remains elevated and at least one more hike would be required, which is likely to come in December. Besides, higher interest rates are likely to stay for a longer period as the Fed lowered its forecast for rates cuts from four to two in 2024.
This saw treasury yields rising once again. The 10-year Treasury yield has been hovering around the 4.65% mark this month and on Oct 19 hit a high of 4.996%, nearing the 5% level that was last seen in 2007.
Also, inflation increased once again in September. The consumer price index (CPI) reading increased 0.4% in September month over month, higher than economists’ expectations of a jump of 0.3%, the Bureau of Labor Statistics said. Year over year, CPI jumped 3.7% in September, unchanged from September.
Core CPI, which excludes the more volatile energy and food prices, increased by 0.3% compared to the previous month.
Additionally, the Producer Price Index (PPI) rose by 0.5% in September, surpassing expectations of a 0.3% increase. The main factor contributing to this inflation was the higher cost of energy.
Investors have been concerned about rising energy prices, as some believe it could potentially slow down the economy. These concerns were amplified recently due to a surprise attack by Hamas on Israel. Many also believe that the recent conflict between Israel and Hamas might impact the energy market, possibly causing a short-term increase in crude oil prices.
Given this situation, a savvy investor might want to explore the option of investing in large-cap value funds as a strategy to mitigate risk. Large-cap stocks have a long track record of success and tend to be more reliable compared to mid- or small-cap stocks.
Moreover, value funds, which primarily include stocks that are often priced below their fundamental metrics, such as earnings, book value, and debt-to-equity ratios, while also providing dividend payments, are particularly attractive to investors in search of lucrative investment prospects.
3 Best Choices
We’ve identified three such large-cap value mutual funds that have demonstrated impressive annualized returns over both 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).
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 8.6%, respectively. Dodge & Cox Stock I fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.51%, which is below the category average of 0.94%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Invesco Comstock A fund seeks capital growth and income through investments in equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks. ACSTX’s investment adviser generally seeks to identify companies that are undervalued and have identifiable factors that might lead to improved valuations. Invesco Comstock A fundinvests at least 80% of its net assets in common stocks at the time of investment.
ACSTX’s 3-year and 5-year annualized returns are 19.5% and 7.7%, respectively. Invesco Comstock Afund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.01%, which is below the category average of…
Read More: 3 Safe Large-Cap Funds to Buy Amid Market Volatility – October 23, 2023