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

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There are plenty of choices in the Large Cap Blend category, but where should you start your research? Well, one fund that may not be worth investigating is American Funds Fundamental Investors A (ANCFX). 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. American Funds Fundamental Investors A made its debut in July of 1978, and since then, ANCFX has accumulated about $67.66 billion in assets, per the most up-to-date date available. The fund’s current manager is a team of investment professionals.

Performance

Investors naturally seek funds with strong performance. This fund has delivered a 5-year annualized total return of 13.48%, and it sits in the bottom third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 13.09%, 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. Compared to the category average of 15.35%, the standard deviation of ANCFX over the past three years is 18.51%. Looking at the past 5 years, the fund’s standard deviation is 15.09% compared to the category average of 12.68%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

Investors should 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 -2.43, demonstrating that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Holdings

Examining 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 largely on equities that are traded in the United States.

As of the last filing date, the mutual fund has 76.78% of its assets in stocks, with an average market capitalization of $336.50 billion. The fund has the heaviest exposure to the following market sectors:

  1. Technology

  2. Finance

  3. Non-Durable

  4. Industrial Cyclical

With turnover at about 26%, this fund is making fewer trades than its comparable peers.

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, ANCFX is a load fund. It has an expense ratio of 0.60% compared to the category average of 0.95%. ANCFX is actually cheaper than its peers when you consider factors like cost.

This fund requires a minimum initial investment of $250, and each subsequent investment should 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 weak performance, average downside risk, and lower fees, this fund looks like a somewhat weak choice for investors right now.

This could just be the start of your research on ANCFXin the Large Cap Blend category. Consider going to www.zacks.com/funds/mutual-funds for additional information about this fund, and all the others that we rank as well for additional information. For analysis of the rest of your portfolio, make sure to visit Zacks.com for our full suite of tools which will help you investigate all of your stocks and funds in one place.

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