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Investing Specialists

Putting Together an American Funds Portfolio

Four ways to invest in a lineup of behemoths.

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How should investors make use of the biggest fund family around? American Funds has a fairly compact fund lineup--excluding its target-date funds, it offers just 15 equity funds--yet investors still have decisions to make. Should they choose one or two of the firm's world-stock funds, or combine its domestic-stock funds with its sole foreign-stock option,  EuroPacific Growth  (AEPGX)? I'll review four portfolios recently featured in the American Funds newsletter.

While American runs fine offerings on both the growth and value sides of the style box, as well as all-U.S. equity funds and more wide-ranging options, many of its funds overlap with one another. There are two reasons for this. First, as the firm's stock funds have grown ever larger: Many have added more managers to the mix, and thus they have more holdings than they previously did. Because each manager is using research from the same pool of analysts (and granted, it's a large staff), it's inevitable that some of the analysts' favorite stocks will appear in a number of funds. Also, the valuation discrepancy between growth and value stocks has become compressed in recent years after the massive disparity apparent in the bull-market peak of early 2000, and many of American's funds are investing more heavily in lagging mega-caps--which are a relatively small group. Thus, the firm's growth and value funds have more holdings in common than before. For example, large-growth behemoth

Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.