understanding the capital advantage®...10-year average relative rolling large-cap domestic fund...
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1
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
Figures are past results and are not predictive of results in future periods.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other
entity, so they may lose value.
Enhancing Results by
Changing your Manager
Selection Lens®
© 2018 Capital Group. All rights reserved. .
MFCPPO-040-0418 8254 s68368
Myths in the Active / Passive Debate
Low cost + high manager ownership
Strength in down markets
Understanding how we got here
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The Capital Advantage: Five years of research
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2
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
Overall, our equity-focused American Funds have delivered superior lifetime returns
Remarkable lifetime results
Equity-Focused American Funds vs. Relevant Benchmark Indexes.
Returns are average annual total returns for benchmark indexes and average annual excess total return for funds at net asset value from fund inception through 12/31/17. For further information on the methodology behind this exhibit, including each
fund's comparable index, please see the Asset-Weighted Methodology and Remarkable Results exhibit notes.
10.92% 11.36% 10.85% 10.10%8.55%
11.10%10.05% 10.21%
11.76% 11.15%8.67%
7.21%9.27%
7.43%4.94% 5.28% 5.90% 8.44%
1.27%0.32%
1.08%1.48% 3.79%
2.58%
1.03%0.55%
0.86%0.33%
2.34%
2.13%
0.62%
3.39%
3.44% 2.52% 0.88%
-3.45%
ICA
1/1/34
AMF
2/21/50
WMIF
7/31/52
AMCAP
5/1/67
NPF
3/13/73
GFA
12/1/73
IFA
12/1/73
AMBAL
7/26/75
FI
8/1/78
NEF
12/1/83
EUPAC
4/16/84
CIB
7/30/87
SCWF
4/30/90
WGI
3/26/93
NWF
6/17/99
IGI
10/1/08
GBAL
2/1/11
DWGI
2/3/14
Index return Excess return
1.48%
Figures shown are past results for Class A shares and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share
prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Results shown are at net asset value with all distributions
reinvested. If a sales charge (maximum 5.75%) had been deducted, the results would have been lower. For current information and month-end results, visit americanfunds.com.
.
© Capital Group. All rights reserved.
Five equity-focused American Funds have delivered greater wealth
Separating skill from luck
Initial gross investment was $10,000, with $2,000 invested within each of the five funds and was rebalanced monthly. The net amount invested after sales charges was $9,425 across all American Funds, or $1,885 each. The maximum initial sales
chargewas 8.50% prior to July 1, 1988. All distributions were reinvested. The Vanguard fund has no up-front sales charge and is available in another share class with a lower expense ratio. This share class was not available for investment at the
inception of the fund. The American Funds are now also available in less expensive share classes that do not feature a sales charge.
Source: Capital Group, using data obtained from Morningstar. August 31, 1976 through December 31, 2017.
Figures shown are past results for Class
A shares for American Funds (Investor
shares for Vanguard 500 Index Fund)
and are not predictive of results in future
periods. Current and future results may
be lower or higher than those shown.
Share prices and returns will vary, so
investors may lose money. Investing for
short periods makes losses more likely.
Unless otherwise indicated, American
Funds returns are shown at maximum
offering price (MOP) and reflect
deduction of the 5.75% maximum sales
charge at the beginning of the period
shown. Current information and month-
end results for the Vanguard fund can be
found at vanguard.com. For current
information and month-end results for
the American Funds, visit
americanfunds.com.
$2,262,486
The Growth Fund
of America
$1,708,374
AMCAP Fund
$1,058,822 Washington
Mutual Investors Fund
$1,018,731 Investment
Company
of America
$955,842
American Mutual Fund
$780,261
Vanguard 500 Index Fund
1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017
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3
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
Our former chairman,
Jim Fullerton, stated it best
almost 40 years ago
There are three crucial questions to ask when selecting a manager
© Capital Group. All rights reserved. .
What are the manager’s long-term
results?
What are the factors that
contributed to those results?
How likely are those factors to
continue into the future?
.© Capital Group. All rights reserved.
4
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
Look to Raise Your Success Rate
A Group of Select Funds Have Delivered Low Costs and Superior Returns
Source: Capital Group, based on Morningstar data. Data show the percentage of 10-year rolling periods in which an equally weighted portfolio of funds within each category outpaced
indexes. Based on rolling monthly periods from January 1996 to December 2015. U.S. funds are those in the Morningstar Large Value, Large Blend and Large Growth categories. U.S. index
is S&P 500. International funds are those in the Morningstar Foreign Large Value, Foreign Large Blend and Foreign Large Growth categories. International index is MSCI ACWI ex USA. The
indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. Unless otherwise indicated, all distributions were reinvested.
U.S. LARGE CAP FOREIGN LARGE CAP
33%Low
Expense
Ratio
53%High
Manager
Ownership
82%Best of Both
Morningstar
Universe
12%
Morningstar
Universe
24%
45%Low
Expense
Ratio
66%High
Manager
Ownership
95%Best of Both
Characteristics that matter in manager selection
Predictive
Instead of
past results
Stationary Robust Intuitive
Over reasonable
sample periods
Asset classes,
time periods,
market environments
Hypothesis test vs.
data mining
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5
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
Key factors driving our results
Private Ownership Structure
Higher Fund Survivorship
Low Expense Discipline
Skin in the Game
Longer Investment Orientation
Stewardship
Holdings Turnover
Multiple-Manager System
Downside Protection
Disciplined Flexibility
Strategic Use of Cash
The Capital System
.© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
Privately owned fund families outpaced their publicly owned peers
Private ownership structure
Source: Capital Group calculations based on Bloomberg data on firm ownership as of 2016 and Morningstar monthly return data (1997-2016, the latest complete set of data available at the time of publication). Returns and expenses calculated analyzing
the full suite of investment vehicles available across the fund families delineated within this group of dedicated asset managers. This includes only those vehicles owned by fund families that do not offer other products and services outside of asset
management, which would include banks or insurance companies, among others. Please see the Asset-Weighted Methodology and Private Ownership notes in the Methodology for more detail on this calculation.
47 bps
–13 bps
Private vs. public asset managers
Median expense advantage
Median return advantage
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6
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
Higher survivorship has been associated with better results
Across 81 Fund Families With at Least $10 Billion in Assets and at Least 20 Years of Return History
Source: Capital Group calculations based on monthly Morningstar data (1990-2016, the latest complete set of data available at the time of publication). Please see the Asset-Weighted Methodology and Higher Survivorship exhibit notes for more detailed
methodology on how this exhibit was calculated.
Of fund families with
positive excess return,
70% had
higher survivorship.
Of fund families with
negative excess return,
75% had
lower survivorship.
Lower survivorship (lower 3 quartiles) Higher survivorship (top quartile)American Funds is in the
90th percentile
–3
–2
–1
0
1
2
3
4
5
Annualized composite fund family equity return relative to prospectus benchmarks of underlying funds (percentage points per year)
.
© Capital Group. All rights reserved.
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Our funds have consistently featured lower expense ratios
Low expense discipline
Source: Capital Group calculations based on Morningstar data, total net assets and fees by share class (1997-2016, the latest complete set of data available at the time of publication). Please see the Asset-Weighted Methodology and Low Expense
Discipline notes at the back for more information on how this was calculated.
16
28
84
111
106
68
82
69
Active Peers (ex-AF)
Equity-Focused American Funds (AF)
Passive Peers
American Funds F-3 / R-6
41
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7
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
Higher portfolio manager ownership has been associated with better results (by quartile)
Skin in the game
Source: Morningstar monthly average 5-year rolling returns and portfolio manager fund ownership data (1997-2016, the latest complete set ofdata available at the time of publication). Please see the Asset-Weighted Methodology note at the back for
more detail on this calculation.
1 (Highest) 2 3 4 (Lowest)
Average annual total return
Large-Cap Domestic Large-Cap Foreign
5.20%
5.53%
4.99%5.05%
3.95%
4.60%
4.13%
4.81%
.
© Capital Group. All rights reserved.
Funds with longer manager evaluation periods have outpaced those with shorter periods
Longer investment orientation: Manager evaluation & tenure
* Ma, Linlin, Yuehua Tang, and Juan-Pedro Gomez 2016. Portfolio Manager Compensation in the U.S. Mutual Fund Industry. Journal of Finance.
Managers with explicit results-
based compensation exhibit
superior subsequent fund
performance, especially over a
longer time period.
Capital Group has one of
the industry’s longest
investment results
evaluation periods – one,
three, five and eight years.
More importantly, these
returns increased by more
than 30 bps for every 1.2 year
increase in the evaluation
period.*
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Understanding The Capital Advantage®
© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
Our turnover has remained below industry averages for 40 years
Holdings turnover
Source: Capital Group and Morningstar data (1976-2016, the latest complete set of data available at the time of publication). Please see the Holdings Turnover exhibit note for the list of funds included in this analysis and more detailed methodology on
how this exhibit was calculated.
Active Peers
Equity-Focused American Funds
51.59%
59.80%
21.90%
28.00%
99.46%
38.08%
1976 1986 1996 2006 2016
.
© Capital Group. All rights reserved.
Funds with three or more managers have produced better results
Multiple managers vs. individuals
10-Year Average Relative Rolling Large-Cap Domestic Fund Excess Returns Relative to Total Peer Averages (bps per year)
Source: Capital Group calculations based on monthly Morningstar data (1997-2016, the latest complete set of data available at the time of publication). Please see the Asset-Weighted Methodology and Multiple Managers vs. Individuals exhibit notes for
more detailed methodology on how this exhibit was calculated.
Excess return vs. average LCD fund
8 bps
–7 bps
15 bps
1 Manager 3+ Manager
2 Manager
.
9
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
How Capital Group combines managers has made a difference
Our multiple-manager system
Using our multiple-manager system, Capital Group’s equity-focused American Funds have generally experienced better results than those of sampled combinations of single managers in hypothetical funds.
Source: Capital Group calculations based on Capital Group and Morningstar data, 10-year rolling returns (1997-2016, the latest complete set of data available at the time of publication). Hypothetical results are for illustrative purposes only and in no way
represent the actual results of a specific investment. Please see the Asset-Weighted Methodology and the Multiple-Manager System notes for more detailed methodology on how this exhibit was calculated.
Figures shown are past results for
Class A shares and are not
predictive of results in future
periods. Current and future results
may be lower or higher than those
shown. Share prices and returns
will vary, so investors may lose
money. Investing for short periods
makes losses more likely. Results
shown are at net asset value with
all distributions reinvested. If a
sales charge (maximum 5.75%)
had been deducted, the results
would have been lower. For current
information and month-end results,
visit americanfunds.com.
0.9
0.95
1
1.05
1.1
1.15
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
4TH Quartile
3rd Quartile
2nd Quartile
1st Quartile
The Growth Fund
of America
.
10-Year Rolling Returns
–10
0
15%
5
–5
10
© Capital Group. All rights reserved.
Even the “worst” fund outcomes have improved over time
Downside protection
Average worst 5% of annualized returns improved as holding periods lengthened from one year to five and 10 years.
Source: Morningstar and Capital Group monthly data and calculations (1997-2016, the latest complete set of data available at the time of publication). Please see the Asset-Weighted Methodology and Downside Protection exhibit notes for more detailed
methodology on how this exhibit was calculated.
Domestic equity
Rolling 12-months Rolling 60-months Rolling 120-months
–33.5%–31.6%
–3.8%–1.8% –2.6%
0.7%
S&P 500 American
Funds
U.S.
.
10
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
Even the “worst” fund outcomes have improved over time
Downside protection
Average worst 5% of annualized returns improved as holding periods lengthened from one year to five and 10 years.
Source: Morningstar and Capital Group monthly data and calculations (1997-2016, the latest complete set of data available at the time of publication). Please see the Asset-Weighted Methodology and Downside Protection exhibit notes for more detailed
methodology on how this exhibit was calculated.
Rolling 12-months Rolling 60-months Rolling 120-months
Foreign equity
–40.2%
–35.8%
–5.2%
–2.3%
0.9%2.9%
MSCI ACWI ex
USA
American
Funds
Foreign
.
© Capital Group. All rights reserved.
Lower downside capture helped contribute to superior results
Downside protection
“Results Difference due to Downside Capture” is the excess return of funds over their peers in down markets and “Results Difference due to Upside Capture” is the excess return of funds over their peers in up markets. The return difference of each
measurement is the excess return achieved by each of the U.S. equity-focused American Funds compared to the average returns of the asset-weighted active and passive peer groups. "Expenses and Other Adjustments" include the other effects that,
together with downside capture and upside capture, sum to the total return difference.
Source: Capital Group calculations based on monthly Morningstar data (1997-2016, the latest complete set of data available at the time of publication) for all active and index open-ended mutual fund and exchange-traded share classes. Please see the
Asset-Weighted Methodology and Downside Protection - Capture Ratio exhibit notes for more detailed methodology on how this exhibit was calculated.
Versus active peers Versus passive peers
–62 bps
178 bps
–103 bps
278 bps
Results difference due to
downside capture
Net = 116 bps
Net = 175 bps
–46 bps
33 bps
Results difference due to
upside capture
Expenses and other
adjustments
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11
Understanding The Capital Advantage®
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© Capital Group. All rights reserved.
Stable. Robust.
Passive peers are all the funds that Morningstar categorizes as index or smart-beta funds. Active peers are all the funds that Morningstar does not categorize as index or smart-beta funds; fund of funds are not included in this sample.
Source: Capital Group and Morningstar, 20-year annualized excess returns and volatility (1998-2017). Volatility calculated using annualized standard deviation of returns. Please see the Asset-Weighted Methodology note for more detailed methodology
on how this exhibit was calculated.
American Funds Return Advantage American Funds Volatility Advantage
1.17%
over
active peers
–0.99%
–1.37%
1.26%
over
passive peers
.
Don’t settle for average
Strive to double your
batting average
Seek excess return and
lower volatility
© Capital Group. All rights reserved.
Implications for your practice
.
12
Understanding The Capital Advantage®
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© Capital Group. All rights reserved.
Results as of December 31, 2017
American Funds investment results
Figures shown are past results for Class A
shares and are not predictive of results in
future periods. Current and future results
may be lower or higher than those shown.
Share prices and returns will vary, so
investors may lose money. Investing for
short periods makes losses more likely.
Fund results reflect deduction of
maximum sales charge (5.75% for equity
funds). For current information and
month-end results, visit
americanfunds.com.
Symbol 1 Year 5 Years 10 Years
Expense
Ratio (%)
Growth Funds
AMCAP Fund® (AMCAP) AMCPX 15.04 14.17 8.33 0.69
EuroPacific Growth Fund® (EUPAC) AEPGX 23.21 7.55 2.98 0.85
The Growth Fund of America® (GFA) AGTHX 18.90 14.71 7.68 0.64
The New Economy Fund® (NEF) ANEFX 26.66 15.04 8.47 0.82
New Perspective Fund® (NPF) ANWPX 21.47 11.27 6.25 0.75
New World Fund® (NWF) NEWFX 24.93 5.27 2.45 1.04
SMALLCAP World Fund® (SCWF) SMCWX 19.53 11.29 5.63 1.07
.
© Capital Group. All rights reserved.
Results as of December 31, 2017
American Funds investment results
* The fund’s lifetime is less than the full period. American Funds Developing World Growth and Income Fund began operations on February 3, 2014; and International Growth and Income Fund began operations on October 1, 2008.
Figures shown are past results for Class A
shares and are not predictive of results in
future periods. Current and future results
may be lower or higher than those shown.
Share prices and returns will vary, so
investors may lose money. Investing for
short periods makes losses more likely.
Fund results reflect deduction of
maximum sales charge (5.75% for equity
funds). For current information and
month-end results, visit
americanfunds.com.
Symbol 1 Year 5 Years 10 Years
Expense
Ratio (%)
Growth-and-Income Funds
American Funds Developing World Growth and
Income FundSM (DWGI)DWGAX 20.35 3.41* - 1.33
American Mutual Fund® (AMF) AMRMX 10.90 12.12 7.46 0.60
Capital World Growth and Income Fund® (WGI) CWGIX 17.52 9.71 4.39 0.80
Fundamental Investors® (FI) ANCFX 16.27 14.15 7.41 0.62
International Growth and Income FundSM (IGI) IGAAX 18.82 4.95 7.11* 0.93
The Investment Company of America® (ICA) AIVSX 12.85 13.60 7.05 0.60
Washington Mutual Investors FundSM (WMIF) AWSHX 13.28 13.48 7.41 0.58
.
13
Understanding The Capital Advantage®
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© Capital Group. All rights reserved.
Results as of December 31, 2017
American Funds investment results
* The fund’s lifetime is less than the full period. American Funds Global Balanced Fund began operations on February 1, 2011.
Figures shown are past results for Class A
shares and are not predictive of results in
future periods. Current and future results
may be lower or higher than those shown.
Share prices and returns will vary, so
investors may lose money. Investing for
short periods makes losses more likely.
Fund results reflect deduction of
maximum sales charge (5.75% for equity
funds). For current information and
month-end results, visit
americanfunds.com.
Symbol 1 Year 5 Years 10 Years
Expense
Ratio (%)
Equity-Income Funds
Capital Income Builder® (CIB) CAIBX 7.67 9.77 3.74 0.59
The Income Fund of America® (IFA) AMECX 6.86 8.34 5.75 0.56
Balanced Funds
American Balanced Fund® (AMBAL) ABALX 8.85 9.77 6.74 0.60
American Funds Global Balanced FundSM (GBAL) GBLAX 7.42 6.04 5.87* 0.86
.
© Capital Group. All rights reserved.
Important information
Investors should carefully consider the investment objectives, risks, charges
and expenses of the American Funds. This and other important information is
contained in each fund’s prospectus and summary prospectus, which can be
obtained from a financial professional and should be read carefully before
investing. Securities offered through American Funds Distributors, Inc.
.
14
Understanding The Capital Advantage®
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© Capital Group. All rights reserved.
Investment results assume all distributions are reinvested and reflect applicable fees and
expenses. Expense ratios are as of each fund’s prospectus available at the time of publication.
When applicable, investment results reflect fee waivers and/or expense reimbursements, without
which the results would have been lower. Please see americanfunds.com for more information.
Investing outside the United States involves risks, such as currency fluctuations, periods of
illiquidity and price volatility, as more fully described in the prospectus. These risks may be
heightened in connection with investments in developing countries. Small-company stocks entail
additional risks, and they can fluctuate in price more than larger company stocks. The return of
principal for funds with significant underlying bond holdings is not guaranteed. Fund shares are
subject to the same interest rate, inflation and credit risks associated with the underlying bond
holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income
and principal than higher rated bonds.
If used after March 31, 2018, this presentation must be accompanied by a current American Funds
quarterly statistical update.
Content contained herein is not intended to serve as impartial investment or fiduciary advice. The
content has been developed by Capital Group, which receives fees for managing, distributing
and/or servicing its investments.
Important information
.
© Capital Group. All rights reserved.
Market indexes referenced in this material are defined as follows:
Bloomberg Barclays Global Aggregate Index represents the global investment-grade fixed income
markets. This index is unmanaged, and its results include reinvested distributions but do not reflect
the effect of sales charges, commissions, account fees, expenses or U.S. federal income taxes.
Bloomberg Barclays U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond
market. This index is unmanaged, and its results include reinvested dividends and/or distributions
but do not reflect the effect of sales charges, commissions, account fees, expenses or U.S. federal
income taxes.
MSCI All Country World ex USA Index is a free float-adjusted market capitalization-weighted index
that is designed to measure results of more than 40 developed and emerging equity markets,
excluding the United States. Results reflect dividends gross of withholding taxes through December
31, 2000, and dividends net of withholding taxes thereafter.
Important information
.
15
Understanding The Capital Advantage®
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© Capital Group. All rights reserved.
S&P 500 Index is a market capitalization-weighted index based on the results of approximately 500
widely held common stocks.
The market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest
directly in an index. There have been periods when funds have lagged the index. Past results are
not predictive of results in future periods.
The S&P indexes are products of S&P Dow Jones Indices LLC and/or its affiliates and have been
licensed for use by Capital Group. Copyright © 2018 S&P Dow Jones Indices LLC, a division of S&P
Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part
are prohibited without written permission of S&P Dow Jones Indices LLC.
© 2018 Citigroup Index LLC. All rights reserved.
Important information
.
© Capital Group. All rights reserved.
© 2018 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to
Morningstar and/or its content providers; (2) may not be copied or distributed; (3) does not
constitute investment advice offered by Morningstar; and (4) is not warranted to be accurate,
complete or timely. Neither Morningstar nor its content providers are responsible for any damages
or losses arising from this information. Past performance is no guarantee of future results.
Bloomberg® is a trademark of Bloomberg Finance L.P. (collectively with its affiliates, “Bloomberg”).
Barclays® is a trademark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used
under license. Neither Bloomberg nor Barclays approves or endorses this material, guarantees the
accuracy or completeness of any information herein and, to the maximum extent allowed by law,
neither shall have any liability or responsibility for injury or damages arising in connection
therewith.
MSCI has not approved, reviewed or produced this report, makes no express or implied warranties
or representations and is not liable whatsoever for any data in the report. You may not redistribute
the MSCI data or use it as a basis for other indices or investment products.
Important information
.
16
Understanding The Capital Advantage®
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© Capital Group. All rights reserved.
Asset-weighted methodology
Wherever possible, The Capital Advantage research findings are based on asset weighting rather
than equal weighting. Exceptions are noted and explained where applicable. Asset-weighted
comparisons used in this piece use the following process: for each equity-focused fund, we gathered
their respective net returns and asset sizes for all the share classes available for each period. At this
level, the returns are then share class-weighted, which means the returns are asset-weighted
according to the share of assets associated with each share class within each fund. Each fund is
then delineated by whether it is active or passive, then grouped into its respective Morningstar
category. Additionally, each fund’s survivorship rate is accounted for, i.e., once created, we
accounted for whether the funds have merged or closed during the measured period. In those cases
where a fund is merged or closed, its asset weighting is adjusted to zero and its assets are
distributed to all other funds in the category. For newly created funds, the weight of that fund is zero
until the period in which it has reported assets, whereupon we use the standard asset weighting to
weight the returns based on asset size. This methodology is used to more effectively portray the
likely experience of market participants in the analyzed period versus an equal-weighting
methodology, which is more appropriate when analyzing the performance of a specific fund over
time, regardless of the size of its assets. Additionally, asset-weighting is often more appropriate
when analyzing the results of an investment in an entire fund category.
Methodology
.
© Capital Group. All rights reserved.
For example, the return of a $10 billion fund would count for 10 times as much of the return of a
$1 billion fund. From there, as a fund’s assets grow or shrink relative to other funds, its effect on
the category return would increase or decrease as appropriate.
Methodology
.
17
Understanding The Capital Advantage®
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© Capital Group. All rights reserved.
Separating skill from luck
Source for industry average expense ratios is Lipper, based on comparable categories for front-end
load funds (except for the Vanguard fund, which is no load, not front-end load), excluding funds of
funds, as of each fund’s most recent fiscal year-end available as of December 31, 2017. The Lipper
categories for the funds are: AMCAP Fund (Growth); The Growth Fund of America (Large-Cap
Growth); The Investment Company of America, Washington Mutual Investors Fund and American
Mutual Fund (Growth & Income); and Vanguard 500 Index Fund (S&P 500 Index Objective Funds).
These numbers were calculated by the Capital Group based on underlying Morningstar data.
Methodology
.
© Capital Group. All rights reserved.
Remarkable results
Returns are average annual total returns for benchmark indexes and average annual excess total
return for funds at net asset value from fund inception through 12/31/17. The 18 American Funds
equity-focused funds used in our analysis and the relevant index/ index blends with which they
were compared are as follows: AMCAP Fund, The Growth Fund of America, The New Economy Fund,
American Mutual Fund, Fundamental Investors, The Investment Company of America and
Washington Mutual Investors Fund (Standard & Poor's 500 Index); American Funds Developing
World Growth and Income Fund (MSCI Emerging Markets Index); EuroPacific Growth Fund (MSCI
EAFE Index through 03/31/2007 and the MSCI All Country World ex USA Index, the fund's current
primary benchmark, thereafter); International Growth and Income Fund (MSCI World ex USA Index
through 06/30/2011 and the MSCI All Country World ex USA Index, the fund's current primary
benchmark, thereafter); New Perspective Fund (MSCI World Index through 09/30/2011 and the
MSCI All Country World Index, the fund's current primary benchmark, thereafter); Capital World
Growth and Income Fund (MSCI World Index through 11/30/2011 and the MSCI All Country World
Index, the fund's current primary benchmark, thereafter); SMALLCAP World Fund (S&P Global <$3
Billion Index through 09/30/2009 and the MSCI All Country World Small Cap Index, the fund's
current primary benchmark, thereafter); Capital Income Builder (70% MSCI All Country World and
30% Bloomberg Barclays U.S. Aggregate indexes.
Methodology
.
18
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
From 7/30/1987, through 12/31/1987, the MSCI World Index was used); American Funds Global
Balanced Fund (60% MSCI All Country World and 40% Bloomberg Barclays Global Aggregate
indexes); American Balanced Fund (60% Standard & Poor's 500 and 40% Bloomberg Barclays U.S.
Aggregate indexes); New World Fund (MSCI All Country World Index); and The Income Fund of
America (65%/35% S&P 500 Index/Bloomberg Barclays U.S. Aggregate Index. From 12/01/1973,
through 12/31/1975, the Bloomberg Barclays Government/Credit Bond Index was used).
Private ownership
As of 2017, we classified all large fund families as those with at least $10 billion in assets as well
as those with at least 10 years of return history as of 2006, which were then categorized by
whether they were publicly (i.e., owned by public shareholders) or privately held. The results were
then categorized by whether the fund families' are managed by dedicated asset management
firms, or they were part of an organization with other products or services, including banks,
insurance companies, and institutional financial services. Then we compared the returns of all
investment vehicles managed by either the privately owned or publicly owned dedicated asset
managers.
Methodology
.
© Capital Group. All rights reserved.
Higher survivorship
Family fund survivorship is calculated based on the ratio of live funds to total funds (which includes
live, liquidated and merged). Fund family excess returns (based on the excess return of equity
funds over their respective stated primary benchmark) are time-weighted (funds with more history
are weighted higher) and are generated by all equity funds offered by the family at any point in
time. Exhibit 4 focuses on peer fund families that manage over $10 billion in AUM and have
generated at least 20 years of returns, as of 2017. To create the fund family composite, we weight
these funds according to the amount of assets they have at a given time. These numbers are
calculated over the full 20 year period and then annualized.
Low expense discipline
This exhibit was calculated in accordance with the Asset-Weighted Methodology; however, in those
cases where Morningstar categories did not contain passive peers, comparisons to the American
Funds were still made for the purposes of this exhibit only. The data analyzed showed that those
missing passive peers were frequently the most expensive categories, thus, when not available,
likely skewed results in favor of the remaining passive peer categories, making them even less
expensive than any in the active peer category or American Funds.
Methodology
.
19
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
Holdings turnover
Turnover for the equity-focused American Funds represented by the equal-weighted average of those
American Funds with at least 40 years of return history. At any one point in time, active peers are
represented by the equal-weighted average of all existing funds in their respective Morningstar peer
categories: American Mutual Fund (U.S. Fund Large Growth); Washington Mutual Investors Fund
(U.S. Fund Large Value); The Investment Company of America (U.S. Fund Large Blend); Fundamental
Investors (U.S. Fund Large Blend); The New Economy Fund (U.S. Fund Large Growth); AMCAP Fund
(U.S. Fund Large Growth); The Growth Fund of America (U.S. Fund Large Growth); International
Growth and Income Fund (U.S. Fund Foreign Large Blend); EuroPacific Growth Fund (U.S. Fund
Foreign Large Growth); New Perspective Fund (U.S. Fund World Large Stock); Capital World Growth
and Income Fund (U.S. Fund World Large Stock); SMALLCAP World Fund (U.S. Fund World Small/Mid
Stock); American Funds Developing World Growth and Income FundSM (U.S. Fund Diversified
Emerging Markets); New World Fund (U.S. Fund Diversified Emerging Markets). Analysis not asset-
weighted due to unavailability of data.
Methodology
.
© Capital Group. All rights reserved.
Multiple managers vs. individuals
For these calculations we grouped funds by the number of managers (where number = 1, 2, 3+ for
each fund) each month. The results for funds with more than three managers were similar to those
with three managers, but the number of funds in those groupings were too small to treat as a
separate category. Within each group, fund returns are asset weighted to build a monthly time
series for the full period. Then, to compare the three groups of returns, we calculated the monthly
10-year rolling returns of each group versus both the S&P 500 and the equal-weighted average of
all managers within the Morningstar Large Cap Domestic universe.
Methodology
.
20
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
Multiple-manager system
Simulated fund outcome distributions are the result of combining the equal-weighted results of a
monthly sample of single-manager funds in the appropriate Morningstar category, where the
number of funds equals the number of managers in our corresponding equity-focused fund at that
time. Results for single-manager funds are based on the oldest share class available, as designated
by Morningstar. All 12 of Capital Group’s equity-focused American Funds, not including our two
balanced funds, with at least 20-year return histories were included in a full analysis for this exhibit.
Analysis does not include balanced funds — American Balanced Fund, American Funds Global
Balanced Fund and Capital Income Builder — as well as those with fewer than 20 years of returns —
International Growth and Income Fund, American Funds Developing World Growth and Income Fund
or New World Fund. American Funds results are based on asset-weighted share classes. The Growth
Fund of America, The New Economy Fund, Capital World Growth and Income Fund and SMALLCAP
World Fund were selected for the exhibit because they are representative of the range of results
from the full analysis. All returns are 10-year returns. Figures for each year shown on the horizontal
axis are the annualized return for the past 10 years. In all, there are 20 years of 10-year returns.
Methodology
.
© Capital Group. All rights reserved.
Downside protection
Capital Group calculations for nine equity-focused American Funds, including seven domestic
equity-focused funds benchmarked to the S&P 500 — The Growth Fund of America, The Investment
Company of America, The New Economy Fund, AMCAP Fund, Washington Mutual Investors Fund,
and American Mutual Fund — and two foreign equity-focused American Funds benchmarked to the
MSCI ACWI ex USA — EuroPacific Growth Fund and International Growth and Income Fund. We
calculated the “worst” fund outcomes using the average of worst 5% of monthly returns, for each
index and American Fund composite over rolling 12-, 60- and 120-month periods using asset-
weighted and share-class weighted fund composites.
Methodology
.
21
Understanding The Capital Advantage®
© Capital Group. All rights reserved.
© Capital Group. All rights reserved.
Downside protection – Capture ratio
Capture ratio reflects the annualized product of fund versus index returns for all months in which the
index had a positive return (upside capture) or negative return (downside capture). “Results
Difference due to Downside Capture” is the excess return of funds over their peers in down markets
and “Results Difference due to Upside Capture” is the excess return of funds over their peers in up
markets. The return difference of each measurement is the excess return achieved by each of the
U.S. equity-focused American Funds compared to the average returns of the asset-weighted active
and passive peer groups. Downside capture and upside capture versus the appropriate market
benchmark are both calculated annually for every share class (alive and dead). A share class must
have at least 12 months of returns to generate a downside or upside capture result. Downside and
upside capture for each category is weighted by each fund's average net assets by year.
Methodology
.
© 2018 The Capital Group Companies, Inc.
Figures are past results and are
not predictive of results in future
periods.
Investments are not FDIC-
insured, nor are they deposits of
or guaranteed by a bank or any
other entity, so they may lose
value.
For financial professionals only. Not for use with the public.
Figures are past results and are not predictive of results in future periods.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other
entity, so they may lose value.
Enhancing Results by
Changing your Manager
Selection Lens®
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