It’s possible that the 2017 market environment will be a strong year for a handful of funds.
And factors that look to be key contributors to performance for the best American funds in the next year center upon a maturing business cycle and the beginning of a new presidential cycle, which can combine for strength in high-quality growth stocks and from actively managed funds with deep management experience.
In a nutshell, that describes the core of what the best American funds have in common.
And if 2017 doesn’t turn out as healthy as forecast, the best American funds tend to hold up better on the downside than their respective category averages. In summary, our picks can capture the upside potential in 2017 but also minimize the worst of the downside should the market turn negative.
So, with a 2017 theme of cyclical strength with chance for some downside pressure, these three American funds look to be smart holdings:
Best American Funds for 2016: American Funds Growth Fund of America (AGTHX)
Sales Charge: 5.75%
Expenses: 0.66%, or $66 for every $10,000 invested
Minimum Initial Investment: $250
With the U.S. economy clearly in a the late stage of the business cycle, outstanding growth funds like American Funds The Growth Fund of America (MUTF:AGTHX) are a good idea for your portfolio.
By December 2016, AGTHX was beating more than 90% of large growth funds and that dominance looks to extend into 2017. The AGTHX portfolio consists of roughly 80% U.S. stocks like Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Broadcom Ltd (NASDAQ:AVGO), 15% foreign stocks and about 5% cash.
With above-average performance in bull markets and average to above-average performance in bear markets (AGTHX beat 60% of large growth funds in the 2008 crash), Growth Fund of America could be among the best American funds for 2017.
Best American Funds for 2016: American Funds Developing World Growth & Income (DWGAX)
Sales Charge: 5.75%
Expenses: 1.32%
Minimum Initial Investment: $250
If you’re looking to diversify with non-U.S. equities, funds that invest in emerging markets can be smart choices in 2017, which makes American Funds Developing World Growth and Income Fund (MUTF:DWGAX) an outstanding choice.
Developing countries outside the U.S., such as European countries, are lagging the emerging markets in regions like Asia and the Pacific Rim. Being a world stock fund, the DWGAX portfolio is well diversified, with exposure to regions outside of emerging markets, including Latin America, with smaller allocations to Europe and the U.S.
Top holdings in the DWGAX portfolio include Delta Electronics, America Movil SAB de CV (ADR) (NYSE:AMX) and Unilever Plc (ADR) (NYSE:UL).
Emerging markets funds far outpaced developed countries in 2016 and look to do the same in 2017. However the small slivers of exposure to developed countries in the DWGAX portfolio can limit downside, should investors decide to move into risk-off mode in 2017.
Best American Funds for 2016: American Funds Capital Income Builder (CAIBX)
Sales Charge: 5.75%
Expenses: 0.59%
Minimum Initial Investment: $250
If you’re convinced the market is headed for a downturn in 2017, which is a real possibility, or you need a diversified income fund, a solid balanced fund like American Funds Capital Income Builder (MUTF:CAIBX) is your best choice.
The CAIBX portfolio consists of approximately 80% stocks, 15% bonds and 5% cash. The stocks are divided between U.S equities like Philip Morris International Inc. (NYSE:PM), Verizon Communications Inc. (NYSE:VZ) and Abbvie Inc (NYSE:ABBV), and foreign stocks.
This combination of value-oriented stocks with a modest allocation of bonds allows for a balance that can produce income and growth while offering downside protection should the market see a downturn in 2017.
In reflection on this list of best American funds to buy for 2017, investors should keep in mind that there are alternative, no-load share classes available to certain qualifying investors. Be sure to see our story on 7 American Funds for Low-Cost Connoisseurs.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.
