What Makes American Funds' Equity Lineup Golden
A strong, results-oriented investing culture serves customers well.
Alec Lucas: American Funds’ multimanager approach has long served its equity investors well--and should continue to do so, thanks to parent Capital Group’s strong, results-oriented investing culture. Indeed, 13 of the 14 American Funds equity offerings with a forward-looking Morningstar Analyst Rating are medalists, including 10 Gold-rated funds.
To maximize their chances of success, investors should understand the options within the American Funds equity lineup. While the 14-fund lineup is nearly comprehensive in scope, it isn’t exhaustive. There is no foreign-large value Morningstar Category offering, for example. Meaningful exposure to small-cap stocks can also be harder to come by, but it isn’t absent: Smallcap World is a growth-leaning, global small-cap and mid-cap stock fund. There are also two multi-cap offerings: AMCAP, which has a domestic focus, and New Economy, which has a nearly global mandate. Both tend to hold ample cash stakes to help moderate the market’s ups and downs and pick up bargains amid volatility. AMCAP has a capital appreciation mandate, but its sector exposures tend to be more diversified than New Economy, which looks for innovative companies and often invests heavily in tech and biotech stocks, including companies domiciled in emerging markets. Unlike its multi-cap siblings, Growth Fund of America is a large- and mega-cap-oriented fund. It can invest up to 25% of its assets overseas and has latitude to own turnaround plays in addition to more-conventional growth stocks.
Investors interested in value as well as core exposure have a pair of options to choose from. American Mutual and Washington Mutual both prioritize financially sound dividend-payers and avoid companies that receive most of their revenue from alcohol or tobacco. Where they differ is that American Mutual has more of a value orientation and tends to hold a double-digit combined cash and bond stake, while Washington Mutual stays fully invested.
Investment Company of America and Fundamental Investors share growth-and-income mandates. Investment Company of America, the more conservative of the two, has a domestic focus, whereas Fundamental Investors can be more aggressive and makes use of its ability to invest up to 35% of its assets in non-U.S. stocks.
Returning to global options, New Perspective is a large-cap, growth-oriented fund focused on multinational blue-chip companies while Capital World Growth and Income, as its name suggests, has a growth-and-income mandate. So, too, does International Growth and Income, but it limits its purview to non-U.S. stocks. Europacific Growth provides exposure to non-U.S. large-cap growth stocks, though it also has an appetite for turnaround plays, too. New World and Developing World Growth Income both target emerging-markets equity exposure while trying to keep volatility to a minimum. New World tilts more toward emerging-markets debt and developed-markets equity exposure--including U.S. companies with significant emerging-markets revenue--as a means of delivering a smoother ride, while Developing World Growth and Income concentrates on dividend-payers, which tend to be less volatile than stocks without payouts. New World is the more proven of the two.
On the whole, investors have excellent options to choose from within American’s 14-fund lineup.