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Is American Funds Income Fund of America A (AMECX) a Strong Mutual Fund Pick Right Now?

Zacks Equity Research

If you've been stuck searching for Large Cap Value funds, consider American Funds Income Fund of America A (AMECX) as a possibility. AMECX carries a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

AMECX is one of many Large Cap Value mutual funds to choose from. These funds invest in equities with a market capitalization of $10 billion or more, but whose share prices do not reflect their intrinsic value. This strategy can often produce low P/E ratios and high dividend yields; growth levels; however, growth levels are oftentimes cut back. These funds'high growth opportunities are slowed even more since large-cap stocks are usually in more stable industries with low to moderate growth prospects. Thus, investors interested in a stable income stream fund Large Cap Value funds very appealing.

History of Fund/Manager

AMECX finds itself in the American Funds family, based out of Los Angeles, CA. American Funds Income Fund of America A debuted in December of 1970. Since then, AMECX has accumulated assets of about $73.59 billion, according to the most recently available information. The fund is currently managed by a team of investment professionals.

Performance

Investors naturally seek funds with strong performance. This fund carries a 5-year annualized total return of 5.96%, and it sits in the bottom third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 8.26%, 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. Over the past three years, AMECX's standard deviation comes in at 7.11%, compared to the category average of 9.81%. The standard deviation of the fund over the past 5 years is 7.63% compared to the category average of 9.83%. This makes the fund less 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 AMECX's case, the fund lost 42.42% in the most recent bear market and outperformed its peer group by 8%. This could mean that the fund is a better choice than comparable funds during a bear market.

Nevertheless, investors should also note that the fund has a 5-year beta of 0.6, which means it is hypothetically less volatile than 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. Over the past 5 years, the fund has a negative alpha of -1. This means that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

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, AMECX is a load fund. It has an expense ratio of 0.56% compared to the category average of 1.01%. AMECX is actually cheaper than its peers when you consider factors like cost.

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 Income Fund of America A ( AMECX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively weak performance, average downside risk, and lower fees, American Funds Income Fund of America A ( AMECX ) looks like a great potential choice for investors right now.

Your research on the Large Cap Value segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.


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