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Is American Funds Fundamental Investors A (ANCFX) a Strong Mutual Fund Pick Right Now?

Zacks Equity Research

Large Cap Blend fund seekers should not consider taking a look at American Funds Fundamental Investors A (ANCFX) at this time. ANCFX has a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

ANCFX is part of the Large Cap Blend section, an area that boasts an array of many possible options. Large Cap Blend mutual funds most often invest in firms with a market capitalization of $10 billion or more. By investing in bigger companies, these funds offer more stability, and are often well-suited for investors with a " buy and hold " mindset. Blended funds mix large, established companies into their holdings, which gives investors exposure to both value and growth at the same time.

History of Fund/Manager

American Funds is based in Los Angeles, CA, and is the manager of ANCFX. The American Funds Fundamental Investors A made its debut in July of 1978 and ANCFX has managed to accumulate roughly $53.03 billion in assets, as of the most recently available information. The fund is currently managed by a team of investment professionals.

Performance

Of course, investors look for strong performance in funds. This fund carries a 5-year annualized total return of 8.34%, and is in the middle third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 9.41%, which places it in the bottom third during this time-frame.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. The standard deviation of ANCFX over the past three years is 11.98% compared to the category average of 9.77%. The fund's standard deviation over the past 5 years is 11.94% compared to the category average of 9.91%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

One cannot ignore the volatility of this segment, however, as it is always important for investors to remember the downside to any potential investment. In ANCFX's case, the fund lost 50.05% in the most recent bear market and outperformed its peer group by 0%. This means that the fund could possibly be an on par choice than its peers during a down market environment.

Nevertheless, investors should also note that the fund has a 5-year beta of 0.97, which means it is hypothetically as volatile as the market at large. Another factor to consider is alpha, as it reflects a portfolio's performance on a risk-adjusted basis relative to a benchmark-in this case, the S&P 500. ANCFX has generated a negative alpha over the past five years of -1.95, demonstrating that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Holdings

Exploring the equity holdings of a mutual fund is also a valuable exercise. This can show us how the manager is applying their stated methodology, as well as if there are any inherent biases in their approach. For this particular fund, the focus is mostly on equities that are traded in the United States.

Right now, 86.89% of this mutual fund's holdings are stocks, with an average market capitalization of $200.24 billion. The fund has the heaviest exposure to the following market sectors:

  1. Technology
  2. Finance
  3. Industrial Cyclical
  4. Other

Turnover is about 48%, so those in charge of the fund make fewer trades than comparable funds.

Expenses

As competition heats up in the mutual fund market, costs become increasingly important. Compared to its otherwise identical counterpart, a low-cost product will be an outperformer, all other things being equal. Thus, taking a closer look at cost-related metrics is vital for investors. In terms of fees, ANCFX is a load fund. It has an expense ratio of 0.60% compared to the category average of 1.03%. So, ANCFX is actually cheaper than its peers from a cost perspective.

Investors need to be aware that with this product, the minimum initial investment is $250; each subsequent investment needs to be at least $50.

Bottom Line

Overall, American Funds Fundamental Investors A ( ANCFX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, this fund looks like a somewhat weak choice for investors right now.

For additional information on the Large Cap Blend area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into ANCFX too for additional information. If you want to check out our stock reports as well, make sure to go to Zacks.com to see all of the great tools we have to offer, including our time-tested Zacks Rank.


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