Portfolio Construction | American Funds
PORTFOLIO CONSTRUCTION

Making portfolios
personal.

why capital group?

Dedicated to pursuing your clients' long-term goals.

Our portfolio construction approach focuses on objective-driven design, flexible execution, and targeted solutions to help your clients reach their individual goals.

investor goals

build wealth

build wealth

spend wealth

build wealth

conserve wealth

build wealth

Investment Objectives

Growth

Long-term growth of capital

Growth and income

Long-term growth of capital and income

Distribution income

Current income, long-term growth of capital and conservation of capital

Preservation and income

Current income and capital preservation

OUR APPROACH

Focus on investor goals.

BETTER INVESTOR OUTCOMES

We build individual strategies for distinct investment objectives, forming a spectrum that aligns to a range of investor goals.

We give fund managers the flexibility, subject to fund guidelines, to move across geography, industry and market cap in pursuit of their objective.

We combine individual strategies to design targeted solutions so they work together to pursue the desired portfolio outcome.

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Objective-Driven Design​

Build-real life portfolios.

While style-based allocations may provide some level of diversification, as seen in

the clustering of MSCI indexes below, our objective-based funds have allowed for a greater

range of risk and return. Read important investment disclosure.

​Average return and volatility based on rolling 10-year monthly periods for the 40 years ended December 31, 2017.

Source: Capital Group. American Funds sample includes U.S.-focused funds with at least four decades of history. For categories with multiple funds, average annualized return is a simple arithmetic average of rolling 10-year monthly average annual total returns (annualized), while annualized standard deviation of returns measures the standard deviation of monthly returns (also annualized). For more information and current results, click on the above fund name.Click here for index descriptions. 

Objective-Driven Design​

Build-real life portfolios.

While style-based allocations may provide some level of diversification, as seen in

the clustering of MSCI indexes below, our objective-based funds allowed for a greater

range of risk and return. Read important investment disclosure.

​Average return and volatility based on rolling 10-year monthly periods for the 40 years ended December 31, 2017.

Source: Capital Group. American Funds sample includes U.S.-focused funds with at least four decades of history. For categories with multiple funds, average annualized return is a simple arithmetic average of rolling 10-year monthly average annual total returns (annualized), while annualized standard deviation of returns measures the standard deviation of monthly returns (also annualized). For more information and current results, click on the above fund name.Click here for index descriptions. 

Objective-Driven Design​

Build-real life portfolios.

While style-based allocations may provide some level of diversification, as seen in the clustering of MSCI indexes below, our objective-based funds allowed for a greater range of risk and return. Read important investment disclosure.

​Average return and volatility based on rolling 10-year monthly periods for the 40 years ended December 31, 2017.

Source: Capital Group. American Funds sample includes U.S.-focused funds with at least four decades of history. For categories with multiple funds, average annualized return is a simple arithmetic average of rolling 10-year monthly average annual total returns (annualized), while annualized standard deviation of returns measures the standard deviation of monthly returns (also annualized). For more information and current results, click on the above fund name.Click here for index descriptions. 

Index descriptions

Bloomberg Barclays U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market and consists of U.S. Treasury and government related bonds, corporate securities and asset-backed securities.


MSCI USA Index is a free float-adjusted, market capitalization-weighted index that is designed to measure the U.S. portion of the world market. This index is unmanaged and includes reinvested dividends and/or distributions, but does not reflect sales charges, commissions, expenses or taxes.


MSCI USA Growth Index captures large- and mid-cap securities exhibiting overall growth style characteristics in the U.S. The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate, long-term historical EPS growth trend and long-term historical sales per share growth trend.


MSCI USA Value Index captures large- and mid-cap U.S. securities exhibiting overall value style characteristics. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield.


Standard & Poor’s 500 Index is a market capitalization-weighted index based on the average weighted results of approximately 500 widely held common stocks.


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.


The S&P 500 is a product of S&P Dow Jones Indices LLC and/or its affiliates and has 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 is prohibited without written permission of S&P Dow Jones Indices LLC.


The indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.

flexible execution

Allow flexibility for results.

Flexible fund mandates provide our portfolio managers a broad opportunity set to help improve investor outcomes. See how geographic flexibility impacts a fund's return compared to its benchmark below. Read important investment disclosure.

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Relative results vs. fund benchmark, 2004-2017

​These equity-focused American Funds have prospectuses that allow portfolio managers to take security positions outside the fund’s primary benchmark weightings.

​Attribution results are for each fund’s primary benchmark: Standard & Poor’s 500 Composite Index (Fundamental Investors, The Growth Fund of America, The New Economy

Fund), MSCI All Country World Index (Capital World Growth and Income Fund, New Perspective Fund), MSCI All Country World Small Cap Index (SMALLCAP World Fund), MSCI

ACWI (New World Fund) and MSCI ACWI ex USA (EuroPacific Growth Fund). Geographic allocation within each fund fluctuated throughout the time period shown.

1Data was collected beginning in January 2004 and ending in December 2017. The chart shows the longest available time period.

2The net excess return is the sum of the above benchmark results minus the below benchmark results.

1Other factors include cash — which is a negative drag on a 100% invested portfolio in up markets; and residual — to which undisclosed securities, differences in valuation of certain of international securities and intraday transactions contribute.

Relative results vs. fund benchmark, 2004-2017

​These equity-focused American Funds have prospectuses that allow portfolio managers to take security positions outside the fund’s primary benchmark weightings.​​

Attribution results are for each fund’s primary benchmark: Standard & Poor’s 500 Composite Index (Fundamental Investors, The Growth Fund

of America, The New Economy Fund), MSCI All Country World Index (Capital World Growth and Income Fund, New Perspective Fund), MSCI All Country World Small Cap Index (SMALLCAP World Fund), MSCI ACWI (New World Fund) and MSCI ACWI ex USA (EuroPacific Growth Fund). Geographic allocation within each fund fluctuated throughout the time period shown.

1Data was collected beginning in January 2004 and ending in December 2017. The chart shows the longest available time period.​​

2The net excess return is the sum of the above benchmark results minus the below benchmark results.​​

3Other factors include cash — which is a negative drag on a 100% invested portfolio in up markets; and residual — to which undisclosed securities, differences in valuation of certain of international securities and intraday transactions contribute.

​When a fund’s variation from its index’s geographic allocation was a headwind, the fund manager’s ability to select

from a broad universe of securities — both inside and outside the U.S. — helped the fund outpace its index.

Relative results vs. fund benchmark, 2004-2017

​These equity-focused American Funds have prospectuses that allow portfolio managers to take security positions outside the fund’s primary benchmark weightings.

​Attribution results are for each fund’s primary benchmark: Standard & Poor’s 500 Composite Index (Fundamental Investors, The Growth Fund of America, The New Economy

Fund), MSCI All Country World Index (Capital World Growth and Income Fund, New Perspective Fund), MSCI All Country World Small Cap Index (SMALLCAP World Fund), MSCI

ACWI (New World Fund) and MSCI ACWI ex USA (EuroPacific Growth Fund). Geographic allocation within each fund fluctuated throughout the time period shown.

1Data was collected beginning in January 2004 and ending in December 2017. The chart shows the longest available time period.

2The net excess return is the sum of the above benchmark results minus the below benchmark results.

1Other factors include cash — which is a negative drag on a 100% invested portfolio in up markets; and residual — to which undisclosed securities, differences in valuation of certain of international securities and intraday transactions contribute.

Targeted Solutions

Create a portfolio as distinct as they are.

Compose a portfolio of funds that offer rigorously researched securities – rather than a blend of indexes that reflect a market-weighted exposure – that are selected to pursue specific investment objectives.

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​American Funds® Growth Model

Portfolio

​10-Year Return: 7.69%

​10-Year Standard Deviation: 15.42%

​30-Day Yield: 1.11%

Class F-2 shares as of 12/31/17

​Important details

​American Funds® Conservative Growth and Income Model Portfolio

​10-Year Return: 5.98%

​10-Year Standard Deviation: 9.02%

​30-Day Yield: 3.06%

Class F-2 shares as of 12/31/17

​Important details

​With targeted solutions to

help get them there

​We design investments to accomplish varied and focused objectives, with flexibility across size, style, geography, and asset class. 

​See model portfolio returns that reflect changes

to the underlying fund allocations over its lifetime. 

​The Capital Group Portfolio Oversight Committee developed the model portfolios on May 9, 2011. Results and data for the model portfolios shown are based on the current underlying fund allocations rebalanced monthly.

​Claudia requires a growth portfolio

​Chris requires a growth and

income portfolio

​Meet Claudia & Chris

​Claudia

​Chris

​Two investors who have very different dreams

​Claudia wants to grow her assets

​Open and operate her own business. She

needs to grow her savings to use as startup

capital.

​Chris wants a source of income

​He needs to withdraw from his savings for living expenses in retirement.

​That’s why we believe each

requires a portfolio aligned

to their goals

​Explore our solutions

​For underlying funds and allocations, please view the Growth Model Portfolioor Conservative Growth and Income Model Portfolio.

For underlying funds results and expenses, click here.

Standard deviation is a measure of how returns over time have varied from the mean and is one of the most common measures of absolute volatility. A lower number signifies lower volatility.

​The yield for the current model allocation is a weighted average of the underlying funds’ annualized 30-day SEC yields at NAV. The SEC yield reflects the rate at which the underlying funds are earning income on their current portfolio of securities.

​For underlying funds and allocations, please view the Growth Model Portfolioor Conservative Growth and Income Model Portfolio.

For underlying funds results and expenses, click here.

Standard deviation is a measure of how returns over time have varied from the mean and is one of the most common measures of absolute volatility. A lower number signifies lower volatility.

​The yield for the current model allocation is a weighted average of the underlying funds’ annualized 30-day SEC yields at NAV. The SEC yield reflects the rate at which the underlying funds are earning income on their current portfolio of securities.

​A solution for every client

​EXPLORE OUR Model Portfolios

See how we fit into your portfolios.

Model portfolios

Complete, scalable portfolio solutions

Individual funds

Solutions aligned to specific objectives and strategies

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Sunder Ramkumar & Clyde Bell
July 21, 2017

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Sunder Ramkumar & Michelle J. Black
November 8, 2017

Portfolio construction

2018 Portfolio Playbook

Capital Ideas Editorial Team
January 2018
Figures shown are past results 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. View fund expense ratios and returns.

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.


Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

Cash & equivalents includes short-term securities, accrued income and other assets less liabilities.

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.

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 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.

Fund shares of U.S. Government Securities Fund are not guaranteed by the U.S. government.

For more information about the risks associated with each fund or underlying fund, go to its detailed fund information page or read the prospectus.

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. When applicable, investment results reflect expense reimbursements, without which results would have been lower. Please see americanfunds.com for more information. Expense ratios are as of fund prospectuses available at the time of publication. Class F-2 share results prior to the date of first sale are hypothetical based on Class A share results without a sales charge, adjusted for estimated annual expenses. Results for certain funds with an inception date after August 1, 2008, also include hypothetical returns because those funds’ Class F-2 shares sold after the funds’ date of first offering. Please see americanfunds.com for more information on specific expense adjustments and the actual dates of first sale.

American Funds Model Portfolios 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. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. For current information and month-end results, visit americanfunds.com.

Class F-2 average annual total returns (%) as of June 30, 2018
Model Portfolio Details
Current model allocation returns are based on the current underlying fund allocations rebalanced monthly; lifetime return is since the inception date of the model’s youngest underlying fund.

Actual model allocations returns reflect changes in the underlying fund allocations over the model’s lifetime rebalanced monthly; lifetime return is since the launch of the model portfolio.

The underlying funds in American Funds Growth Model Portfolio are SMALLCAP World Fund, EuroPacific Growth Fund, The Growth Fund of America, AMCAP Fund, Fundamental Investors and The Investment Company of America. The underlying funds in 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.

*The model yield is a weighted average of its underlying funds' annualized 30-day SEC yields. Fund yields are annualized 30-day SEC yields at NAV. The SEC yield reflects the rates at which the fund is earning income on its current portfolio of securities.