American Funds Review — Everything You Need to Know Before Investing

One of the world's largest mutual fund companies has something for everyone

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American Funds is one of the largest mutual fund companies in the world. Their funds are offered through brokers and can be found in many 401(k) plans in the U.S. In this American Funds review, we'll highlight the pros and cons of investing and how to open an account with the leading mutual fund company.

Who Is American Funds Best For?

Founded in 1931, American Funds is part of Capital Group and is the third largest mutual fund company in the world; it manages over over $1.7 trillion in assets.

Capital Group can be found around the globe with 7,500 employees in offices in multiple locales, including North America, Europe, Asia, and Australia. Their mutual funds are sold in a number of ways: through brokerage firms, by online discount brokers, or as part of 401(k) plans.

American Funds should appeal to investors who want to purchase high-quality mutual funds from brokers. This mutual fund company may be a good fit for investors who are looking for:

  • Advice from brokers
  • Above-average long-term returns
  • Actively-managed funds that charge loads (or fees) in exchange for advice
  • High-quality funds for long-term savings accounts, such as 401(k) plans or IRAs

The funds listed here are loaded funds, meaning they charge for purchases and sales, and they may have fees for other expenses, such as 12b-1 fees. This is why they are most often sold through brokers—investors buy loaded funds in exchange for advice.

American Funds offers more than 30 mutual funds in many diverse categories. Some of these rank as the best funds compared to others in the same group. This may or may not mean American Funds is best fit for you. Weigh the pros and cons with care before you decide to purchase their funds.

Pros
  • Managed by professional advisors

  • Investment advice (if funds are purchased through a broker)

  • Wide range of options of high-quality mutual funds

  • Many fund share classes to suit investor preferences of all kinds

  • Expense ratios are low compared to other actively-managed funds

Cons
  • No sector funds, index funds, or exchange-traded funds (ETFs)

  • Expense ratios higher than some no-load funds

  • Funds only available through brokers or 401(k) plans

Types of Funds Available at American Funds

American Funds offers mutual funds that cover seven main types including:

  • Growth Stock
  • Growth and Income
  • Equity-Income
  • Balanced
  • Taxable Bond
  • Tax-Exempt Bond
  • Money Market

Growth Stock Funds

Growth funds seek to increase capital in the long term by buying stock in companies that are on track for major growth. Here are American Funds’ growth stock mutual funds (A shares):

  • EuroPacific Growth Fund (AEPGX): Invests in companies of all sizes, mainly in Europe and Asian countries in the Pacific region. Expense ratio is 0.82%, front load is 5.75%, and requires $250 to start.
  • The New Economy Fund (ANEFX): Invests in stocks of companies that focus on new technologies or products and services that can help grow a global economy. Expense ratio is 0.77%, front load is 5.75%, and requires $250 to start.
  • New Perspective Fund (ANWPX): Invests in multi-national companies that have strong growth prospects. Expense ratio is 0.75%, front load is 5.75%, and requires $250 to start.
  • AMCAP Fund (AMCPX): Invests in large and small companies, primarily in the U.S., that have potential for strong, long-term growth. Expense ratio is 0.66%, front load is 5.75%, and requires $250 to start.
  • The Growth Fund of America (AGTXH): Invests in growth stocks that have long-term growth potential. This fund is safer than most large-cap growth funds. Expense ratio is 0.62%, front load is 5.75%, and requires $250 to start.
  • SMALLCAP World Fund (SMCWX): Invests in companies all around the world with market capitalizations up to $6 billion. Expense ratio is 1.04%, front load is 5.75%, and requires $250 to start.
  • New World Fund (NEWFX): Invests in newer markets and countries that have strong ties with developing economies. Expense ratio is 1%, front load is 5.75%, and requires $250 to start.

Growth and Income Funds

Growth and income funds seek growth of capital and current income through stock that pays dividends. Here are American Funds’ Growth and Income Funds:

  • Capital World Growth and Income Fund (CWGIX): This fund seeks stocks of companies around the world that can offer investors growth and current income. Expense ratio is 0.76%, front load is 5.75%, and requires $250 to start.
  • International Growth and Income Fund (IGAAX): Invests mainly in large companies outside of the U.S. that pay dividends. Holds more non-U.S. stocks than other American Funds with holdings in other countries. Expense ratio is 0.90%, front load is 5.75%, and requires $250 to start.
  • American Mutual Fund (AMRMX): Seeks current income, growth of capital, and to preserve principal. Avoids “sin stocks” like those that produce alcohol or tobacco. Expense ratio is 0.57%, front load is 5.75%, and requires $250 to start.
  • Fundamental Investors (ANCFX): Seeks value stocks that are either under-valued by the market or under-appreciated by investors. Focused on growth over yield. Expense ratio is 0.59%, front load is 5.75%, and requires $250 to start.
  • The Investment Company of America (AIVSX): The oldest fund in the American Funds lineup, AIVSX owns large, well-known U.S. companies. Its focus is on long-term growth, and not as much on current income. Expense ratio is 0.57%, front load is 5.75%, and requires $250 to start.
  • Washington Mutual Investors Fund (AWSHX): This fund puts stocks through a strict vetting process before adding them to their portfolio. It is rare for AWSHX to purchase stocks that profit from alcohol or tobacco. Expense ratio is 0.57%, front load is 5.75%, and requires $250 to start.
  • American Funds Developing World Growth and Income (DWGAX): Seeks growth and income stocks, mainly of newer markets and economies. Expense ratio is 1.24%, front load is 5.75%, and requires $250 to start.

Equity-Income Funds

Equity-income funds seek income and growth through a mix of bonds and stocks that pay dividends. American Funds offer two equity-income funds:

  • Capital Income Builder (CAIBX): This fund typically holds stocks of companies that can provide above-average current income. Holdings are mainly stocks of companies that have have help up over time, and that pay above-average dividends or with a strong chance of income in the future. CAIBX funds can invest up to 50% of assets outside of the United States. Expense ratio is 0.58%, front load is 5.75%, and requires $250 to start.
  • The Income Fund of America (AMECX): This fund has a flexible approach to finding above-average income. It can invest up to 25% of assets in stocks of companies outside of the U.S. and up to 20% of assets in high-yield bonds, which can be rated below investment grade (BB and below). Expense ratio is 0.55%, front load is 5.75%, and requires $250 to start.

Balanced Funds

Balanced funds seek to conserve principal, along with long-term growth of capital and current income through a mix of securities, usually stocks and bonds. American Funds offers two balanced funds:

  • American Funds Global Balanced Fund (GBLAX): Invests in stocks and bonds all around the globe, seeking growth, conservation of principal, and current income. Expense ratio is 0.84%, front load is 5.75%, and requires $250 to start.
  • American Balanced Fund (ABALX): Offers a diversified balance of quality stocks and bonds, that can include up to 15% of portfolio assets in non-U.S. holdings. Expense ratio is 0.57%, front load is 5.75%, and requires $250 to start.

Taxable Bond Funds

Taxable bond funds seek current income through fixed-income securities. These funds are best for accounts with tax benefits, such as IRAs and 401(k)s. Here are the taxable bond funds offered at American Funds:

  • American High Income Trust (AHITX): Invests in high-yield bonds which can produce stock-like returns, although they have greater market risk than standard bonds. Expense ratio is 0.68%, front load is 3.75%, and requires $250 to start.
  • American Funds Corporate Bond Fund (BFCAX): Invests mainly in investment grade or higher-quality corporate bonds. Expense ratio is 1.02%, front load is 3.75%, and requires $250 to start.
  • American Funds Emerging Markets Bond Fund (EBNAX): Invests in government and corporate bonds in newer markets. Bond holdings may be high-yield. Expense ratio is 1.06%, front load is 3.75%, and requires $250 to start.
  • American Funds Inflation Linked Bond Fund (BFIAX): Invests mainly in inflation-linked securities, such as Treasury inflation-protected securities (TIPS). This may offer investors both current income and protection against inflation. Expense ratio is 0.72%, front load is 2.50%, and requires $250 to start.
  • American Funds Strategic Bond Fund (ANBAX): Seeks total returns higher than core bond funds, but higher yields and less risk than equity securities. Expense ratio is 1.03%, front load is 3.75%, and requires $250 to start.
  • Short Term Bond Fund of America (ASBAX): Invests mainly in U.S. government bonds and mortgage-backed securities with an average maturity of up to three years. This mix can result in higher yields than money market funds, but lower interest-rate risk than bond funds, with longer average maturity. Expense ratio is 0.69%, front load is 2.50%, and requires $250 to start.
  • Intermediate Bond Fund of America (AIBAX): Mainly holds high-quality government and corporate bonds that mature between three and five years. Expense ratio is 0.60%, front load is 2.50%, and requires $250 to start.
  • U.S. Government Securities Fund (AMUSX): Invests mostly in Treasury and agency securities and attempts to minimize interest rate risk. Expense ratio is 0.65%, front load is 3.75%, and requires $250 to start.
  • American Funds Mortgage Fund (MFAAX): Invests in a diversified blend of high-quality mortgage-related securities. Expense ratio is 0.67%, front load is 3.75%, and requires $250 to start.
  • The Bond Fund of America (ABNDX): This is American Funds’ most diversified bond fund. ABNDX invests in nearly every sector of the bond market, with a focus on high-quality bonds. Expense ratio is 0.60%, front load is 3.75%, and requires $250 to start.
  • Capital World Bond Fund (CWBFX): Invests mainly in government and corporate bonds in both developed and developing markets outside of the U.S. Expense ratio is 0.95%, front load is 3.75%, and requires $250 to start.

Tax-Exempt Bond Funds

Tax-exempt bond funds seek to earn tax-free interest through municipal bonds. Tax-exempt bond funds are best held in taxable accounts, especially for those investors in high federal tax brackets. Here are American Funds’ tax-exempt bond funds:

  • American High Income Municipal Bond (AMHIX): Invests mainly in high-yielding municipal bonds, as it seeks to offer tax-exempt income. Expense ratio is 0.58%, front load is 3.75%, and requires $250 to start.
  • American Funds Short-Term Tax-Exempt Bond Fund (ASTEX): Seeks to provide higher income than money market funds by holding high-quality, short-term municipal bonds. On average these securities mature in three years or less. Expense ratio is 0.58%, front load is 2.50%, and requires $250 to start.
  • American Funds Tax-Exempt Fund of New York (NYAAX): Seeks to provide tax-exempt income at the federal and state levels for New York citizens by investing in municipal bonds within the state. Expense ratio is 0.72%, front load is 3.75%, and requires $1,000 to start.
  • Limited Term Tax-Exempt Bond Fund of America (LTEBX): Invests in a diverse array of municipal bonds that mature on average between three and 10 years, and with medium- to high-grade credit quality (BBB and above). Expense ratio is 0.59%, front load is 2.50%, and requires $250 to start.
  • The Tax-Exempt Bond Fund of America (AFTEX): American Funds’ most diversified municipal bond fund, AFTEX invests only in bonds that are not subject to the alternative minimum tax. Expense ratio is 0.52%, front load is 3.75%, and requires $250 to start.
  • The Tax-Exempt Fund of California (TAFTX): Seeks to provide tax-exempt income at the federal and state levels for California citizens by investing in municipal bonds within the state. Expense ratio is 0.60%, front load is 3.75%, and requires $1,000 to start.

Money Market Funds

American Funds offers just one money market fund, American Funds U.S. Money Market Fund (AFAAX). Like all money market funds, it is liquid and can be withdrawn with no fees or hassle, and provides stable (though low) growth rates. Money market funds rarely see losses in principal, offering low yields but still a greater chance of earning income than most bank savings accounts. This fund has no load but expenses are 1.28%.

How to Buy American Funds

American Funds are available to purchase through stock brokers and some online discount brokers. Typically, American Funds are loaded, which means investors pay a sales charge, either upon purchase (front-loaded A shares) or upon sale of shares (back-loaded B shares).

Other share classes are available. Some funds (R shares) can be purchased as load-waived, which is common in 401(k) plans.

Customer Service

Have questions or need help? You can reach representatives from the Capital Group Monday through Friday, 8:00 am to 7:00 pm EST, at 1(800) 421-4225.

If you're calling from outside the U.S., you can call collect at either +1 (757) 670-4900 or +1 (949) 975-5000.

If you need help navigating American Funds' website, call 1 (800) 421-4225 ext. 99.

About American Funds

Since 1931, American Funds—a Capital Group company—has been helping individuals, retirees, sponsors, administrators, financial advisors, institutions, and more figure out investment solutions that serve their long-term goals. American Funds is one of the largest mutual fund managers in the world, with $1.87 trillion in assets under management (AUM).

The Bottom Line

BENEFITS

American Funds offers high-quality, low-cost mutual funds available through brokers, (some) online discount brokers, and in 401(k) plans.

DRAWBACKS

When purchased outside of a 401(k) plan, investors will typically pay a sales charge. Do-it-yourself investors can find no-load funds with lower expense ratios; however, they do not receive investment advice unless they pay a separate fee.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.