For the first time in almost a decade,
American Funds plans to launch a new equity fund.
The fund,
American Funds International Growth and Income, fills a void in the group's lineup and reflects changes in the global market capitalization, said
American Funds spokesman Chuck Freadhoff. The fund is currently in registration with the Securities and Exchange Commission.
American Funds, advised by Capital Research and Management Co. of Los Angeles, infrequently makes additions to its 30-fund line-up. Its most recent equity fund addition, the New World Fund (NEWFX), came in 1999. It added the Short-Term Bond Fund of America (ASBAX) in 2006 and a series of target date funds last year.
The International Growth and Income fund will invest 90% outside the United States both in developed and developing markets, and seek
dividend-paying securities.
"As the number of companies outside the U.S. that pay dividends has grown, the ability to have a fund like this has become more viable," Mr. Freadhoff said. In 1998, 52% of the world's market capitalization was outside of the United States, he said. "Now it's 58% outside of the U.S."
The fund will likely invest in many large-cap stocks, said Greg Carlson, fund analyst at Chicago-based research firm Morningstar Inc.
"
American Funds have long favored companies that pay out dividends," Mr. Carlson said. "I think they see opportunities. Small-cap has outperformed large-cap. There are attractive valuations in the large-cap arena."
The fund will probably fall somewhere between the foreign-large-value or [foreign-]large-growth categories, he said.
Dividend-paying stocks can be viewed as a sign of financial strength, which means "they should be more consistent in performance," Mr. Carlson said. "
American Funds tend to be average in their category in terms of volatility. They are broadly diversified funds."
Since
American Funds takes its time in considering new funds, the fund launch "doesn't speak to a trend," Mr. Carlson added. "They are trying to bring out funds that are invested in areas that in their opinion are undervalued and would provide a good opportunity for investors."
Regardless of the demand, not everyone recommends American Funds.
"We don't use them, because of their policy of never closing a fund," said Lou Stanasolovich, president of Legend Financial Advisors Inc. of Pittsburgh, which has $360 million in assets under management. "Many of their funds are more than $20 billion in size, which is considered by most fund groups to be the upper limit. You won't find their funds out there at the top of the outperformance list."
Smaller funds are more nimble and have a better chance of outperforming, Mr. Stanasolovich said. "We like the boutique firms," he said. "They are more willing to close a fund to keep the size down. They offer a higher risk-adjusted return."
There is also too much [investment] overlap among the funds at American Funds, Mr. Stanasolovich said.
While Mr. Freadhoff acknowledged that his fund group has no closed funds at this time, he said: "Size is an issue that we pay a lot of attention to. The way we manage money with the multimanager counselor system gives us the flexibility to manage funds that are growing or large. It doesn't mean that we wouldn't consider closing a fund."
Some of the funds have similar investment objectives, Mr. Freadhoff said. "But there is a wide variety of mandates and a lot of funds that are quite different," he said.
American Funds has two funds similar to the new offering, Mr. Freadhoff added — the
American Funds EuroPacific Growth Fund (AEPGX), a large-cap fund that has no
dividend component, and the
American Funds Capital World Growth and Income Fund (CWGIX), which is a global fund.
Some believe that the new fund is a good addition to the lineup.
"It will be a complementary core diversifier," said Joe Alexopolous, principal of Aequitas Wealth management LLC of Los Angeles, which manages $20 million in assets. "I would also like to see them add a small-cap international fund."
"We have no plans to introduce any other funds at this point," Mr. Freadhoff said.
The new fund will be managed by three portfolio managers at Capital Research — Steven Watson, Carl Kawaja and Andrew Suzman — each having more than a dozen years' experience at the firm.
E-mail Sue Asci at [email protected].
