After being beaten down heavily at the start of 2016, most of the major benchmarks have lately shown signs of stabilization with strong gains. Factors including a crude rally, improvement in the domestic economy and a low interest rate played the key roles in boosting investor sentiment. While the Dow entered the positive territory for the first time in 2016 last Thursday, the S&P 500 managed the same on Friday. Also, the markets posted weekly gains for the fifth consecutive week. Moreover, the fear-gauge CBOE Volatility Index (VIX) - a widely known measure of volatility - declined 23% since the start of 2016, indicating that the markets are stabilizing.
Meanwhile, U.S. based mutual funds that focus on acquiring equity securities also rebounded strongly on the back of impressive performance at the equity markets. While most of the broader U.S. equity fund categories remain in the negative territory year to date, each category registered significant gains over the past one month. Banking on these positive developments, large-cap blend mutual funds, which offer the best of both value and growth investing and promise stable returns, may prove to be ideal investment propositions for now.
Factors Leading to the Rebound
A strong rally in oil prices was mainly behind the rebound in the major benchmarks. After touching a 13-year low on Feb. 11, the WTI crude gained nearly 50.5% on an increasing possibility of production freeze, continued decline in rig counts and a lower-than-expected rise in crude inventories. Qatari oil minister and president of OPEC, Mohammed Bin Saleh Al-Sada, recently said that the major oil producers will be meeting in Doha on April 17 to discuss production freeze. Meanwhile, rig count in the U.S. declined for the twelfth consecutive week to an all-time low level.
Moreover, several economic data that released recently showed that the U.S. economy is on a path of recovery. While the economy witnessed strong and better-than-expected job growth last month, unemployment rate remained in line with the significantly low January rate of 4.9%. Also, the Labor Department reported that the core-Consumer Price Index (CPI), which excludes food and energy prices, gained 2.3% from the year-ago level, witnessing its biggest increase since May 2012. Meanwhile, the Fed recently highlighted that "economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months."
Separately, in its March meeting, the Federal Open Market Committee (FOMC) decided to keep the rate of interest flat between 0.25% and 0.50% and projected that the number of rate hikes this year will be two instead of four as forecast in its December meeting. The assurance that the rate will be kept unchanged for a longer period of time also had a positive impact on investor sentiment. And to top it all, the Fed Chairwoman Janet Yellen said: "The committee continues to feel that we are on a course where the economy is improving and inflation is moving back up."
4 Large-Cap Blend Funds to Buy
After losing nearly 6% in the first two months of 2016, the large-cap blend category made an impressive rebound on the back of gradual improvement in investor sentiment. This helped the category to register a strong gain of 7% over the past one-month period. The uniqueness of these funds to provide returns at a lower level of risk by investing in both value and growth stocks might have attracted investors. While large-cap funds offer more stability than mid caps or small caps, blend funds offer a great mix of growth and value investment.
Given this favorable environment, we highlight four large-cap blend mutual funds that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). 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.
These funds have encouraging one-month and year-to-date returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio and no sales load.
DFA U.S. Large Company I (MUTF:DFUSX) invests a minimum of 95% of its assets in securities of companies listed in the S&P 500 Index and tries to maintain a similar company weight. DFUSX may also invest in derivatives including futures contracts and options on futures contracts for adjustment of market exposure.
Currently, DFUSX carries a Zacks Mutual Fund Rank #1. The fund has one-month and year-to-date returns of 7.2% and 0.9%, respectively. Annual expense ratio of 0.08% is lower than the category average of 1.03%.
Vanguard Dividend Appreciation Index Investor (MUTF:VDAIX) seeks to provide returns similar to the NASDAQ US Dividend Achievers Select Index. VDAIX invests all of its assets in common stocks of companies listed in the index in proportion, which is similar to their weighting in the index.
Currently, VDAIX carries a Zacks Mutual Fund Rank #2. The fund has one-month and year-to-date returns of 5.7% and 3.7%, respectively. Annual expense ratio of 0.20% is lower than the category average of 1.03%.
State Farm Growth (MUTF:STFGX) invests heavily in securities including common stocks and others that are expected generate income. The fund invests in securities of companies with a minimum market capitalization of $1.5 billion.
STFGX currently carries a Zacks Mutual Fund Rank #2. One-month and year-to-date returns of STFGX are 5.5% and 3.3%, respectively. Annual expense ratio of 0.12% is lower than the category average of 1.03%.
Hartford Stock HLS IA (MUTF:HSTAX) seeks capital appreciation over the long run. HSTAX invests the lion's share of its assets in equity securities of large-cap companies having market capitalization within the range of the Russell 1000 Index. The fund may invest a maximum of 20% of its assets in foreign securities.
Currently, HSTAX carries a Zacks Mutual Fund Rank #2. The fund has one-month and year-to-date returns of 5.4% and 2.6%, respectively. Annual expense ratio of 0.50% is lower than the category average of 1.03%.