Wall Street had a volatile start to 2025 after major indexes retreated from their earlier highs in the final weeks of December. Concerns have grown lately that the Federal Reserve could likely slow its pace of rate cuts as inflation is still high.
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The renewed fears come after a stellar 2024 for stocks as indexes hit all-time highs. However, fewer rate cuts could weigh on consumer spending as borrowing costs will remain high, which could keep markets volatile for longer.
Given this situation, it would be safe to invest in large-cap value funds. We suggest three large-cap value funds, namely, Northern Income Equity (NOIEX – Free Report) , Federated Hermes MDT Large Cap Value Svc (FSTKX – Free Report) and T. Rowe Price Value (TRVLX – Free Report) .
Fears of Fewer Rate Cuts Grow
The minutes of the Federal Reserve’s December policy meeting released earlier this week show that most committee members believed the risk of rising inflation in the near term had increased. This came as fresh data showed an uptick in inflation for November.
The consumer price index (CPI) increased by 0.3% in November, marking its largest rise since April 2024, after four months of 0.2% gains. On a year-over-year basis, CPI grew 2.7%. Core CPI, which excludes the volatile food and energy prices, saw a 0.3% rise month-over-month in November and a 3.3% increase compared to the same month last year.
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The jump in inflation saw the post-election rally coming to a halt in the final weeks of December. Markets have stayed volatile since, with all three major indexes closing the first week of the year in negative territory.
Fears grew further this week following the release of the minutes of the Fed’s last policy meeting as investors believe that there could be fewer rate cuts in 2025. Since September, the Federal Reserve has reduced interest rates by 100 basis points, bringing its benchmark rate to the range of 4.25-4.5%. However, the Fed also indicated that it expects to make only two rate cuts at most this year. These ongoing concerns could contribute to prolonged market instability.
3 Best Choices
We’ve identified three large-cap value mutual funds that have demonstrated 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 12% and 14.1%, 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.
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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 14.6% and 14.3%, 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.
T. Rowe Price Value fund seeks long-term capital appreciation. TRVLX invests at least 65% of total assets in common stocks that the portfolio manager regards as undervalued. T. Rowe Price Value fund’s stock holdings consist primarily of large-company issues but also include smaller companies.
TRVLX’s 3-year and 5-year annualized returns are 9.2% and 12.7%, respectively. T. Rowe Price Value fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.69%, which is lower than its 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.
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