The U.S. economy entered September on a mixed note, as market participants reacted to renewed inflation concerns and signs of softer economic activity. Federal Reserve Chair Kevin Warsh warned that inflation remains sticky and pushed up expectations for a quarter-point rate hike in September. Rising oil prices, fueled by escalating U.S.-Iran tensions, added another inflationary headache. While manufacturing and services activity remained in expansion territory, momentum softened in key areas. ISM manufacturing PMI slipped to 54.6 in August from 55.6 in July, while services PMI rose to 55.4 from 54.1.
The labor market also showed some cracks: job openings increased by 89,000 to 7.27 million in July, but hiring fell to 5.1 million, its lowest level since February. Private employers added just 38,000 jobs in August, and July hiring fell to 5.1 million, its lowest level since February. Consumer sentiment also weakened to 51.7 from 55.2 in July. With 10-year Treasury yields near 4.8%, the Fed faces a tricky balancing act, controlling inflation without putting too much pressure on economic growth.
Amid such market conditions, investors who seek higher returns than large-cap funds but less volatility than small-cap ones can opt for mid-cap mutual funds, such as Vaughan Nelson Mid Cap Fund VNVAX, Tcw Relative Value Mid Cap Fund TGVOX and Fidelity Value FDVLX as their major holdings to achieve the investment objective.
These funds have the majority of their investments in sectors such as technology, finance, consumer durables and industrial cyclical, which will help investors with long-term growth and preservation of wealth.
Why Invest in Mid-Cap Value Mutual Funds?
Mid-cap value mutual funds provide excellent opportunities to seek returns with lower risk by offering exposure to stocks that are available at a discounted price. While large companies are normally known for stability and the smaller ones for growth, mid-caps offer growth and stability simultaneously. Companies with market capitalization between $2 billion and $10 billion are generally considered mid-cap.
Value mutual funds are those that invest in stocks trading at discounts to their book value and have a low price-to-earnings ratio, along with high dividend yields. Value investing is always a coveted strategy, and for good reason. After all, who doesn’t want to add stocks that have low PEs, a solid outlook and decent dividends? However, not all value funds solely comprise companies that primarily use their earnings to pay out dividends. Investors interested in choosing value funds for yield should surely check the mutual fund yield.
