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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 a division of Capital Group and is the third largest mutual fund company in the world with over $1.7 trillion in assets under management.
Capital Group operates around the globe with 7,500 employees in offices in multiple locations, including North America, Europe, Asia, and Australia. Investors primarily buy American Funds mutual funds through brokerage firms, some online discount brokers, or 401(k) plans.
American Funds should appeal to investors wanting to purchase high-quality mutual funds from brokers. This mutual fund company may be a good fit for investors who want:
Advice from brokers
The potential for above-average long-term returns from mutual funds
Actively-managed mutual funds that charge loads in exchange for advice
High-quality mutual funds for long-term savings vehicles, such as 401(k) plans or IRAs
It’s important to note that American Funds typically has sales charges or other expenses, such as 12b-1 fees, associated with their mutual funds. This is why they are most commonly sold through brokers — investors buy loaded funds in exchange for advice.
American Funds offers more than 30 mutual funds in several diverse categories, some of which are among the best funds in their respective categories. However, American Funds is not the best fit for every investor. Carefully consider the pros and cons of investing with American Funds before purchasing their funds.
Pros
Professional money management
Investment advice (if funds are purchased through a broker)
Diverse selection of high-quality mutual funds
Variety of fund share classes to meet various investor preferences
Below-average expense ratios, compared to similar actively-managed funds
Cons
No selection of 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 primary categories including:
Growth
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 through growth-oriented companies. Here are American Funds’ growth stock mutual funds (A shares):
EuroPacific Growth Fund (AEPGX): Invests in companies of all sizes, primarily in Europe and Asian countries in the Pacific region. Expense ratio is 0.82%, front load is 5.75%, and minimum initial investment is $250.
The New Economy Fund (ANEFX): Invests in stocks of companies that are associated with new technologies or products and services that can help grow a global economy. Expense ratio is 0.78%, front load is 5.75%, and minimum initial investment is $250.
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 minimum initial investment is $250.
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 0.68%, front load is 5.75%, and minimum initial investment is $250.
The Growth Fund of America (AGTXH): Invests in growth stocks that have long-term growth potential. This fund is not as aggressive as the average large-cap growth fund. Expense ratio is 0.62%, front load is 5.75%, and minimum initial investment is $250.
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 minimum initial investment is $250.
New World Fund (NEWFX): Invests in emerging markets and countries that have strong ties with developing economies. Expense ratio is 1.04%, front load is 5.75%, and minimum initial investment is $250.
Growth and Income Funds
Growth and income funds seek growth of capital and current income through dividend payers. 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 0.77%, front load is 5.75%, and minimum initial investment is $250.
International Growth and Income Fund (IGAAX): Invests primarily in large companies outside of the U.S. that pay dividends. Typically holds more non-U.S. stocks than other American Funds with international objectives. Expense ratio is 0.90%, front load is 5.75%, and minimum initial investment is $250.
American Mutual Fund (AMRMX): Seeks current income, growth of capital, and preservation of principal. Avoids “sin stocks” like those of companies that produce or manufacture alcohol or tobacco. Expense ratio is 0.60%, front load is 5.75%, and minimum initial investment is $250.
Fundamental Investors (ANCFX): Seeks value stocks that are either under-valued by the market or under-appreciated by investors. Growth is emphasized over yield. Expense ratio is 0.60%, front load is 5.75%, and minimum initial investment is $250.
The Investment Company of America (AIVSX): The oldest fund in the American Funds lineup, AIVSX owns large, well-known U.S. companies. Greater emphasis is placed on growth of dividends over time, with less priority on current income. Expense ratio is 0.58%, front load is 5.75%, and minimum initial investment is $250.
Washington Mutual Investors Fund (AWSHX): Stock selections must go through a rigorous process to be added to the portfolio. AWSHX does not typically purchase stocks of companies that profit from alcohol or tobacco. Expense ratio is 0.58%, front load is 5.75%, and minimum initial investment is $250.
American Funds Developing World Growth and Income (DWGAX): Seeks growth and income stocks, primarily of emerging markets economies. Expense ratio is 1.30%, front load is 5.75%, and minimum initial investment is $250.
Equity-Income Funds
Equity-income seeks income and growth through a mix of dividend-paying stocks and bonds. 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 primarily stocks of established companies that pay above-average dividends or with strong income potential in the future. Up to 50% of assets can be invested outside of the United States. Expense ratio is 0.59%, front load is 5.75%, and minimum initial investment is $250.
The Income Fund of America (AMECX): This fund has a flexible approach to finding above-average income. Up to 25% of assets can be invested 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 minimum initial investment is $250.
American Funds: Balanced Funds
Balanced funds seek long-term growth of capital, conservation of principal, 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 0.86%, front load is 5.75%, and minimum initial investment is $250.
American Balanced Fund (ABALX): Offers a diversified balance of quality stocks and bonds, including up to 15% of portfolio assets in non-U.S. holdings. Expense ratio is 0.57%, front load is 5.75%, and minimum initial investment is $250.
Taxable Bond Funds
Taxable bond funds seek current income through various fixed-income securities. These funds are most appropriate for tax-advantaged accounts, 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 conventional bonds. Expense ratio is 0.68%, front load is 3.75%, and minimum initial investment is $250.
American Funds Corporate Bond Fund (BFCAX): Invests primarily in investment grade or higher-quality corporate bonds. Expense ratio is 0.90%, front load is 3.75%, and minimum initial investment is $250.
American Funds Emerging Markets Bond Fund (EBNAX): Invests in government and corporate bonds in emerging markets. Bond holdings may be high-yield. Expense ratio is 1.00%, front load is 3.75%, and minimum initial investment is $250.
American Funds Inflation Linked Bond Fund (BFIAX): Invests primarily in inflation-linked securities, such as Treasury inflation-protected securities (TIPS). This may offer investors both inflation protection and income. Expense ratio is 0.73%, front load is 2.50%, and minimum initial investment is $250.
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 1.02%, front load is 3.75%, and minimum initial investment is $250.
Short Term Bond Fund of America (ASBAX): Invests primarily in U.S. government bonds and mortgage-backed securities with an average maturity of up to three years. This objective 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 minimum initial investment is $250.
Intermediate Bond Fund of America (AIBAX): Primarily holds high-quality government and corporate bonds with an average maturity ranging between three and five years. Expense ratio is 0.60%, front load is 2.50%, and minimum initial investment is $250.
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 minimum initial investment is $250.
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 minimum initial investment is $250.
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 0.61%, front load is 3.75%, and minimum initial investment is $250.
Capital World Bond Fund (CWBFX): Invests primarily in government and corporate bonds in both developed and developing markets outside of the U.S. Expense ratio is 0.97%, front load is 3.75%, and minimum initial investment is $250.
Tax-Exempt Bond Funds
Tax-exempt bond funds seek tax-free interest through municipal bonds. Tax-exempt bond funds are best held in taxable accounts, especially for investors in high federal tax brackets. Here are American Funds’ tax-exempt bond funds:
American High Income Municipal Bond (AMHIX): Invests primarily in high-yielding municipal bonds as it seeks to offer tax-exempt income. Expense ratio is 0.68%, front load is 3.75%, and minimum initial investment is $250.
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. The average maturity of the securities is three years or less. Expense ratio is 0.58%, front load is 2.50%, and minimum initial investment is $250.
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 0.68%, front load is 3.75%, and minimum initial investment is $1,000.
Limited Term Tax-Exempt Bond Fund of America (LTEBX): Invests in a diverse selection of municipal bonds with an average maturity between three and 10 years and credit quality of investment-grade (BBB and above). Expense ratio is 0.59%, front load is 2.50%, and minimum initial investment is $250.
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 minimum initial investment is $250.
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 minimum initial investment is $1,000.
Money Market Funds
American Funds offers just one money market fund, American Funds U.S. Money Market Fund (AFAAX), which is a liquid investment seeking stability of income through money market instruments. Money market funds typically do not see losses in principal, offering low yields but higher income potential than most bank savings accounts. This fund has no load but expenses are 1.20%.
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.
