Portfolio construction
Where do we go from here?
Your clients need personalized solutions in times of uncertainty
With a global pandemic, economic and market volatility, and a politically charged environment, investors may be seeking advice about how to proceed. In times of uncertainty, it’s important not to lose sight of the longer term and use this as an opportunity to review your clients’ investment goals. Our objective-based, flexible approach to combining funds and strategies goes beyond asset allocation alone to help you create portfolio solutions that may address your clients’ needs, time horizons and risk tolerance.
Risk-averse
Portfolio solutions that have delivered resilience through market corrections
Rethink the core
Balancing income and lower volatility amid market fluctuations
Opportunistic
Flexibility during times of market volatility can create opportunity
Risk-averse
Portfolio solutions that have delivered resilience through market corrections
When market uncertainty hits, investors may want to seek refuge in perceived safe havens, such as cash or Treasuries. But for investors willing to accept the risks of equity investing, there may be more effective solutions that don’t require large asset allocation changes, such as upgrading core equity, focusing on quality dividends and seeking to ensure that core bonds provide diversification from equity, all while striving for downside protection.
Since 2010, a hypothetical 60/40 combination of American Mutual Fund® (AMF) and The Bond Fund of America® (BFA) generally would have delivered greater excess returns during drawdowns versus a traditional 60/40 Standard & Poor's 500 Composite Index and Bloomberg Barclays U.S. Aggregate Index benchmark blend
Sources: Capital Group, Morningstar. Data is based on Class F-2 shares. Dates shown for market corrections are based on price declines of 10% or more (without dividends reinvested) in the unmanaged S&P 500 with at least 50% recovery persisting for more than one business day between declines.
AMRFX (F-2)
American Mutual Fund invests primarily in well-established companies with strong balance sheets and a history of consistently paying dividends, helping to provide downside resilience. The fund strives for the balanced accomplishment of three objectives: current income, growth of capital and conservation of principal.
ABNFX (F-2)
The Bond Fund of America takes a True Core approach — offering the balance, discipline and consistency that we believe provides better portfolio outcomes. It has the ability to invest in every sector of the bond market, with a limited number of below-investment-grade holdings.
Rethink the core
Seeking balance amid market fluctuations
With income and stability in mind, American Funds® Conservative Growth and Income Model Portfolio leverages dividend-paying stocks for income and growth, while the bond holdings seek to deliver income and hedge against volatility. This portfolio’s emphasis on dividend-paying equities and exposure to quality-oriented bonds has helped to reduce the impact of market fluctuations over time.
American Funds Conservative Growth and Income Model Portfolio would have outpaced its index blend
The underlying fund allocation as of March 31, 2020, in the American Funds Conservative Growth and Income Model Portfolio are American Mutual Fund®, Capital Income Builder®, The Income Fund of America®, American High-Income Trust® and U.S. Government Securities Fund®. Click here for model results and expenses.
Withdrawal scenario based on hypothetical $500,000 initial investments in the model allocation as of March 31, 2020 (Class F-2 shares of the underlying funds) and index portfolio, with monthly withdrawals totaling $20,000 at 4% for the first 12 months, increasing 3% each 12 months thereafter to account for inflation, over rolling 20-year periods since the month-end date following February 19, 1988, the model’s youngest underlying fund, American High-Income Trust’s inception, through March 31, 2020.
As of March 31, 2020, the Conservative Growth and Income Index Blend is 40% S&P 500, 15% MSCI ACWI ex USA, 30% Bloomberg Barclays U.S. Aggregate and 15% Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped indexes, which is the index blend that the Portfolio Solutions Committee believes most closely approximates the investment universe of the model portfolio. The index blend does not specifically represent the benchmarks of the underlying funds in the American Funds model portfolio, which differ. Investors cannot invest directly in an index. There have been periods when the model has lagged the index blend.
What this means
Our funds and portfolio solutions are designed to help you efficiently customize portfolios that align with your clients’ goals, time horizons and risk tolerance.
Opportunistic
Flexibility during times of market volatility can create opportunity
Since the inception of American Funds Strategic Bond Fund® (SBF) in 2016, a hypothetical blended portfolio made up of 60% New Perspective Fund® (NPF) and 40% American Funds Strategic Bond Fund would have outpaced an analogous combination of the 60% S&P 500 and 40% Bloomberg Barclays U.S. Aggregate Index in nearly 75% of rolling 12-month periods. The NPF and SBF combination would have provided 4% and 13% higher ending value versus these index combinations. It's important to note that SBF has only a four-year lifetime, so it hasn't experienced multiple market cycles; however, its flexible investment strategies give the portfolio managers the ability to adjust to evolving market conditions.
A 60/40 combination of New Perspective Fund (NPF) and American Funds Strategic Bond Fund (SBF) outpaced a 60/40 blend of the S&P 500 and Bloomberg Barclays U.S. Aggregate indexes, as well as a 60/40 blend of the MSCI ACWI and Bloomberg Barclays U.S. Aggregate Index
as of 5/31/20
Hypothetical portfolio results since SBF's inception on March 8, 2016 through May 31, 2020
Basis points (bps) represent a lead or lag in the American Funds blended hypothetical portfolio vs. blended index hypothetical portfolios
Annualized standard deviation, based on monthly returns, is a common measure of absolute volatility that tells how returns over time have varied from the mean. A lower number signifies lower volatility.
Sharpe ratios use standard deviation and excess return to determine reward per unit of risk. The higher the number, the better the portfolio's historical risk-adjusted performance.
ANBFX (F-2)
American Funds Strategic Bond Fund
A core plus fund focused on total return consistent with preservation of capital. This strategy seeks higher returns than core bond funds with generally low equity correlation. It aims to drive returns primarily through interest rate, yield curve and inflation positioning, generally resulting in liquid investments with high credit quality. It has the flexibility to invest in extended bond sectors on an opportunistic basis, allowing it to shift credit and duration exposure and pursue opportunities.
ANWFX (F-2)
The fund's investment objective is to provide investors with long-term growth of capital. It seeks to take advantage of evolving global trade patterns by predominantly investing in companies that have potential for growth in capital. Invests primarily in multinational companies with a meaningful share of their sales and operations outside of their home countries. This approach provides the strategy’s portfolio managers with geographic flexibility and the ability to navigate different markets.
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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.
The return of principal for bond funds and 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. The use of derivatives involves a variety of risks, which may be different from, or greater than, the risks associated with investing in traditional cash securities, such as stocks and bonds.
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Standard & Poor’s 500 Composite Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2020 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 is prohibited without written permission of S&P Dow Jones Indices LLC.
©2020 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; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Figures shown are past results for Class F-2 shares and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. View fund expense ratios and returns.
Returns shown at net asset value (NAV) have all distributions reinvested.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
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 dividend and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or taxes.
Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index measures results of the fixed-rate, non-investment-grade corporate bond market and limits issuer exposure to 2%.
MSCI All Country World Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market results in the global developed and emerging markets. The index consists of more than 40 developed and emerging market country indexes. This index is unmanaged, and its results include reinvested dividend and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or taxes.
MSCI All Country World ex USA Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market results in the global developed and emerging markets, excluding the United States. The index consists of more than 40 developed and emerging market country indexes. This index is unmanaged, and its results include reinvested dividend and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or taxes.
Standard & Poor’s 500 Composite Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. This index is unmanaged, and its results include reinvested dividend and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or taxes.
Indexes are unmanaged and do not reflect the effect of sales charges, commissions, account fees, expenses or taxes. Investors cannot invest directly in an index.
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