Large Cap Value fund seekers should not consider taking a look at American Funds Income Fund of America A (AMECX) at this time. AMECX holds a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.
Objective
Large Cap Value mutual funds invest in stocks with a market capitalization of $10 billion or more, but whose share prices do not reflect their intrinsic value; this value investing strategy often leads to low P/E ratios and high dividend yields, though growth levels are often curtailed. The high-growth opportunity of these funds are slowed even further, as large-cap securities are generally in stable industries with low to moderate growth prospects. Therefore, Large Cap Value funds are usually more appealing to investors who are interested in a stable income stream.
History of Fund/Manager
American Funds is based in Los Angeles, CA, and is the manager of AMECX. The American Funds Income Fund of America A made its debut in December of 1970 and AMECX has managed to accumulate roughly $71.10 billion in assets, as of the most recently available information. A team of investment professionals is the fund’s current manager.
Performance
Of course, investors look for strong performance in funds. AMECX has a 5-year annualized total return of 7.38% and is in the middle 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 5.4%, which places it in the middle 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. AMECX’s standard deviation over the past three years is 12.15% compared to the category average of 14.12%. Over the past 5 years, the standard deviation of the fund is 9.94% compared to the category average of 12.13%. This makes the fund less volatile than its peers over the past half-decade.
Risk Factors
With a 5-year beta of 0.62, the fund is likely to be less volatile than the market average. Alpha is an additional metric to take into consideration, since it represents a portfolio’s performance on a risk-adjusted basis relative to a benchmark, which in this case, is the S&P 500. AMECX’s 5-year performance has produced a negative alpha of -1.65, which means managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.
Expenses
Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, AMECX is a load fund. It has an expense ratio of 0.57% compared to the category average of 0.99%. Looking at the fund from a cost perspective, AMECX is actually cheaper than its peers.
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 low Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, American Funds Income Fund of America A ( AMECX ) looks like a somewhat weak 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. 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
