3 Mid-Cap Value Funds to Buy Amid Slower GDP Growth
Rising inflation and slowing economic growth have turned markets volatile again. Also, hopes of a rate cut anytime soon are fast fading, as the Federal Reserve remains firm on its 2% inflation target.
U.S. gross domestic product (GDP) grew a meager 1.6%, missing expectations of a rise of 2.2% and a lot lower than the 3.4% recorded in the fourth quarter of 2023.
Consumer spending has been contracting, leading to a slowdown in overall economic growth. Also, several businesses are cutting back on their inventories, hampering growth.
Inflation has dropped significantly from its peak of 9.1% in June 2022, following the Federal Reserve's adoption of an aggressive monetary tightening policy that saw it increasing interest rates by 525 basis points since March 2022.
However, inflation has resumed its climb this year, with the consumer price index (CPI) rising 3.5% year over year in March. In December, CPI fell below 3%, raising hopes that the Federal Reserve would soon start rate cuts.
However, the optimism surrounding the rate cuts has faded drastically over the past three months. Instead, concerns have grown over the economy’s future.
Higher rate cuts can leave markets volatile for a longer period.
Given this situation, investors should explore mid-cap value mutual funds. Mid-cap funds offer promising opportunities for those aiming for returns with reduced risk. They provide exposure to mid-cap stocks that are either trading at discounted prices or are undervalued.
Mid-cap companies, typically defined as those with market capitalization between $2 billion and $10 billion, offer a unique blend of growth potential and stability. Unlike larger companies known for stability and smaller ones for growth, mid-caps combine both attributes.
Mid-cap mutual funds predominantly invest in sectors such as technology, finance, health, consumer durables, and industrial cyclical, which help investors achieve long-term growth and preserve wealth.
3 Best Choices
We've identified three mid-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).
Vanguard Selected Value Inv VASVX fund invests most of its net assets in mid-cap domestic companies, which, according to the advisor, are undervalued. VASVX advisors consider a stock as undervalued if it is out of favor among investors, trading at a price below average in relation to measures estimated such as earnings and book value, and has an above-average dividend yield.
VASVX’s 3-year and 5-year annualized returns are 11.3% and 14.2%, respectively. Vanguard Selected Value Inv fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.43%, which is lower than its category average of 0.99%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Value FDVLX fund invests in common stocks of medium-sized companies that possess fixed assets or are undervalued with respect to factors such as assets, earnings or growth potential based on the research of Fidelity Management & Research Company LLC (FMR). FDVLX advisors preferably invest in medium-sized companies of domestic or foreign issues.
FDVLX’s 3-year and 5-year annualized returns are 10.8% and 14.8%, respectively. Fidelity Value fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.87%, which is lower than its category average of 0.98%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
JHancock Disciplined Value Mid Cap I JVMIX fund invests most of its assets, along with borrowings, in equity securities. JVMIX advisors also invest in foreign currency.
JVMIX’s 3-year and 5-year annualized returns are 9.8% and 12.8%, respectively. JHancock Disciplined Value Mid Cap I fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.87%.
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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