The American Funds family of mutual funds has a winning formula for long-term investors: Offer compelling actively managed funds that can rival the long-term qualities of passively managed index funds.
American Funds combines low expenses with high manager tenure. They incentivize managers to keep their priorities aligned with investors, and the managers eat their own cooking by owning shares of the funds they manage.
Their team approach to management allows for a smart process of research and analysis that enables even the largest of their funds to maintain solid, benchmark-beating performance over the long term.
Although American Funds are primarily made available through brokers and financial advisers, there are millions of do-it-yourself investors that invest in their mutual funds through 401(k) plans and 529 plans. And there are several American Funds share classes, with various loads and breakpoints for reduced sales charges.
Including all share classes, American Funds offers more than 800 funds. We sifted through all of them to arrive at the 7 best American Funds for the long-term investor.
Best American Funds: American Funds Growth Fund of America (AGTHX)
American Funds excel at large-cap stock investing, and American Funds Growth Fund of America (AGTHX) is the crown jewel.
Like the majority of American Funds, AGTHX wins in the long run with a management team that can find, buy and hold the stocks that outperform the benchmark for years, not just months. This buy-and-hold approach tends to result in short periods of performance below the S&P 500 but has historically been a winning strategy for long-term returns.
AGTHX focuses primarily on large-cap growth U.S. stocks but also ventures overseas. For example, the AGTHX portfolio recently held about 12% of the fund’s assets in foreign stocks. The overseas exposure resulted in underperformance in 2014 but is contributing to solid outperformance thus far in 2015.
As for long-term performance, AGTHX looks strong with an 8% 10-year annualized return, which compares to 7.8% for that of the S&P 500. And all this for just $66 annually per every $10,000 invested.
Best American Funds: American Funds American Mutual (AMRMX)
If you are looking for a solid large-cap stock fund that leans to the value side, American Funds American Mutual (AMRMX) is the best that American Funds has to offer for long-term investors.
While the 10-year annualized return of 7.4% falls just short of the S&P 500’s 7.8%, that performance ranks ahead of 80% of all mutual funds in the large-value category. The 15-year return is an impressive 7.7%, which handily beats that the S&P 500’s return of 4.3% for that period.
The management team’s focus on large-cap names with steady dividends, plus the low turnover of 16%, adds to the long-term appeal of AMRMX.
Best American Funds: American Funds Fundamental Investors (ANCFX)
Investors looking for a quality blend of large-cap growth and large-cap value in one fund will want to take a look at American Funds Fundamental Investors (ANCFX), which may be the best overall fund in the American Funds roster.
Being a large-blend fund with more than $70 billion in assets under management might lead you to expect ANCFX to look like the S&P 500 Index but perform below it. However the active management of the American Funds team adds value with benchmark-beating performance.
The 10-year annualized return of 8.2% trumps that of the S&P 500’s 7.8% and it also beats nearly 90% of other large-blend stock funds.
Best American Funds: American Funds Europacific Growth (AEPGX)
One of the strengths of the American Funds’ management, Capital Research Management Company, is global investing — and American Funds Europacific Growth (AEPGX) is one of their best offerings.
Lead manager Mark E. Denning has been with the Europacific management team for nearly 25 years and several other team members have been on board for 10 years or more.
The 10-year annualized rate of return of 6.5% beats nearly 80% of its foreign large-growth category peers.
The portfolio’s regional exposure consists of approximately 45% Greater Europe, 33% Greater Asia and 13% in the Americas. Top sectors include financials, technology and health. Top holdings include Novartis (NVS), Bayer (BAYZF) and Barclays (BCS).
Best American Funds: American Funds New World (NEWFX)
American Funds New World (NEWFX) may be the best in the American Funds lineup that no one knows about.
While it is a bit of an exaggeration to say no one knows about NEWFX (the fund recently had more than $23 billion in assets), it is still among the smallest American funds in terms of AUM.
Starting with long-term performance, the 10-year annualized return of 7.2% for NEWFX smashes that of the MSCI ACWI index return of 4.7% and it beats 89% of emerging markets funds for the same period.
Performance is also impressive for shorter periods, with ranks for year-to-date, 1-, 3-, and 5-year returns in the top 10%.
The top three managers have been on the NEWFX team for more than 15 years, and that experience looks to make American Funds New World a top-ranked emerging markets fund for the foreseeable future.
Best American Funds: American Funds American Balanced (ABALX)
In terms of balancing risk with reward, you won’t find a better fund in the American Funds lineup than American Funds Amrican Balanced (ABALX).
With a moderate allocation of stocks, bonds and cash, ABALX has put up long-term returns that match those of funds with 100% allocations to stocks, but with less market risk.
The 10-year annualized return for ABALX is 7%, which compares to 5.8% for the average moderate allocation fund and 7.8% on the S&P 500. But go out further to the 15-year returns, which are 7.3% for ABALX, 4.9% for the average moderate allocation fund and 4.3% for the S&P 500. That 15-year return for ABALX ranks ahead of 96% of moderate allocation funds.
Best American Funds: American High-Income Municipal Bond (AMHIX)
The winner in the bond fund category for American Funds is American High-Income Municipal Bond (AMHIX).
Although American Funds Bond Fund of America (ABNDX) is the most popular, with more than $28 billion in assets, the smaller American High-Income Municipal Bond fund, with $3.4 billion, beats it in almost every other way.
AMHIX has historically earned higher returns and produced higher yields than ABNDX. The one caveat, which is significant, is that the lower credit quality of the holdings for AMHIX makes for a riskier holding. But such is the nature of high-yield bond funds. The current 30-day SEC yield for AMHIX is 3.18%.
Comparing apples to apples, AMHIX consistently beats its high-yield bond category peers for the 3-, 5-, 10- and 15-year returns, whereas ABNDX consistently loses against its intermediate-term peers in those periods.
Therefore, AMHIX is the best bond fund for American Funds investors looking for yield and/or higher long-term returns.
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.