Morningstar Target-Date Fund Series Report
January 25, 2023
Based on Class R-6 share results versus Lipper indexes for rolling calendar-year periods starting the first full calendar year after each fund's inception through December 31, 2022. Periods covered are the fund's lifetime or since the comparable Lipper index inception date (except Capital Income Builder and SMALLCAP World Fund, for which the Lipper average was used). This analysis excludes American Funds Multi-Sector Income Fund and American Funds Strategic Bond Fund, which began on March 22, 2019, and March 1, 2016, respectively. Equity funds outpaced Lipper indexes in 91% of rolling periods. Fixed income funds outpaced in 69% of rolling periods.
Our funds have a long history of beating the market while limiting downside risk, helping participants pursue their goals of both building and preserving wealth.
Source: Capital Group. Returns are average annual total returns for benchmark indexes and average annual excess total return for funds at net asset value for Class R-6 shares from fund inception through December 31, 2022. Please see the “Lifetime results methodology” section below for more details on methodology. Market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. There have been periods when the funds have lagged the index.
*Time-weighted average annual excess return across all 18 equity-focused underlying American Funds. The equal-weighted average annual excess return is 1.66%. The time-weighted average gives greater emphasis to those funds that have been in existence longer. For example, this means the 1.37% annualized difference between The Investment Company of America and its benchmark is given proportionally greater weighting when calculating the average across all 18 funds in alignment with its more than 80 years of existence.
Source: Capital Group. Data for downside capture are based on monthly returns for Class R-6 shares from fund inception through December 31, 2022. Please see the “Lifetime results methodology” section below for more details on methodology. Market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. There have been periods when the funds have lagged the index.
The downside capture ratio measures the extent to which a manager has limited negative absolute returns, relative to the market’s decline. Market declines are defined as those months in which the market return was negative. This ratio is akin to a downside beta, specifying the percentage of the down market “captured” by the manager. If, for example, it is greater than 100%, then the manager has trailed in the down market. Conversely, a percentage less than 100% indicates a positive excess return for those market declines; the smaller, the better. Market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.
*Time-weighted average annual excess return across all 18 equity-focused underlying American Funds. The equal-weighted average downside capture ratio is 86.95%. The time-weighted average gives greater emphasis to those funds that have been in existence longer. For example, the 90% downside capture ratio of The Investment Company of America versus its benchmark is given proportionally greater weighting in alignment with its more than 80 years of existence when calculating the average across all 18 funds.
Many of our bond funds stress low correlation* to equities, which can help cushion equity downturns.
Three-year correlation to S&P 500 Index: American Funds vs. peer group average
Source: Morningstar. Data as of December 31, 2022. Results based on Class R-6 shares. The funds’ Morningstar categories are: U.S. Intermediate Government for U.S. Government Securities Fund and American Funds Mortgage Fund; U.S. Short-Term Bond for Intermediate Bond Fund of America and Short-Term Bond Fund of America; U.S. Intermediate Core Bond for The Bond Fund of America; U.S. Inflation-Protected Bond for American Funds Inflation Linked Bond Fund; U.S. World Bond for Capital World Bond Fund; U.S. High Yield Bond for American High-Income Trust; U.S. Fund Intermediate Core-Plus Bond for American Funds Strategic Bond Fund; and U.S. Fund Multisector Bond for American Funds Multi-Sector Income Fund.
*Correlation is a statistical measure of how a security and an index move in relation to each other. A correlation ranges from –1 to 1. A positive correlation close to 1 implies that as one moves, either up or down, the other will move in “lockstep” in the same direction. A negative correlation close to –1 indicates the two have moved in the opposite direction.
Each underlying fund offers a different risk, return and income profile — building a series that more closely aligns with participant needs for every stage of life.
Interact with the visualization below to explore the differentiated return, risk and income characteristics of each component.
Source: Capital Group. The target allocations shown are as of June 30, 2023, and are subject to the oversight committee’s discretion. The investment adviser anticipates assets will be invested within a range that deviates no more than 10% above or below the allocations shown in the prospectus/characteristics statement. Underlying funds may be added or removed during the year. Visit capitalgroup.com for current allocations.
Based on the 30-day SEC yield, annualized standard deviation and average annual return of the underlying funds for Class R-6 shares for the three years ending June 30, 2023. Values rounded to tenths. Annualized standard deviation (based on monthly returns) is a common measure of absolute volatility that tells how returns over time have varied from the mean. A lower number signifies lower volatility. The 30-day SEC yield reflects the rate at which the fund is earning income on its current portfolio of securities calculated in accordance with the SEC formula. View current mutual fund SEC yield.
We encourage a focus not just on expenses but on value delivered to participants.
Our glide path is different. While our Series changes the mix between stocks and bonds, it also changes the types of assets held. This is designed to better align with participant needs over time.
Target date funds have a lot in common. But the American Funds Target Date Series takes a distinctive approach that has delivered uncommon investment outcomes and helped thousands of participants come closer to achieving their financial goals.
Our team is ready to help you help participants.
Important investment disclosures
Lifetime results methodology
The 18 American Funds equity-focused funds used in our analysis (and the relevant indexes/index blends to which they were compared) are: AMCAP Fund, American Mutual Fund, Fundamental Investors, The Growth Fund of America, The Investment Company of America and Washington Mutual Investors Fund (S&P 500); American Balanced Fund (60% S&P 500/40% Bloomberg U.S. Aggregate); American Funds Global Balanced Fund (60% MSCI All Country World/40% Bloomberg Global Aggregate); Capital Income Builder (70% MSCI All Country World/30% Bloomberg U.S. Aggregate); The Income Fund of America (65% S&P 500/35% Bloomberg U.S. Aggregate); Capital World Growth and Income Fund, New Perspective Fund, New World Fund, and The New Economy Fund (MSCI All Country World); EuroPacific Growth Fund and International Growth and Income Fund (MSCI All Country World ex USA); SMALLCAP World Fund (MSCI All Country World Small Cap); and American Funds Global Insight Fund (MSCI World). Each listed index is the funds' primary benchmark, with the exception of American Balanced Fund, American Funds Global Balanced Fund, Capital Income Builder and The Income Fund of America. Each of these funds has two primary benchmarks (the indexes listed above, which are rebalanced monthly).
Some of these indexes lack sufficient history to cover the lifetime of certain funds. Comparable indexes were used for those periods. For American Balanced Fund, a 60% S&P 500/40% Bloomberg U.S. Government/Credit index blend was used for the period between July 26, 1975 (the fund's inception) and December 31, 1975. For Capital Income Builder, a 70% MSCI World/30% Bloomberg U.S. Aggregate index blend was used for the period between July 30, 1987 (the fund's inception) and December 31, 1987. For The Income Fund of America, a 65% S&P 500/35% Bloomberg U.S. Government/Credit index blend was used for the period between November 30, 1973 (the fund's inception) and December 31, 1975. For EuroPacific Growth Fund, the MSCI EAFE (Europe, Australasia, Far East) Index was used for the period between April 16, 1984 (the fund's inception) and March 31, 2007. For New Perspective Fund, the MSCI World Index was used for the period between March 13, 1973 (the fund's inception) and September 30, 2011. For SMALLCAP World Fund, the S&P Global <$3 Billion Index (formerly the S&P Global <$1.2 Billion Index) was used for the period between April 30, 1990 (the fund's inception) and September 30, 2009. For Capital World Growth and Income Fund, the MSCI World Index was used for the period between January 1, 1970 (the fund's inception) and November 30, 2011. For International Growth and Income Fund, the MSCI World Index ex USA was used for the period between January 1, 1970 (the fund's inception) and June 30, 2011.
Index definitions
The Bloomberg U.S. Aggregate Index represents the U.S. investment-grade, fixed-rate bond market.
The Bloomberg U.S. Credit Index is a market-value-weighted index that tracks the total return results of publicly issued U.S. corporate and specified foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements.
The Bloomberg U.S. Government Index measures the performance of the U.S. Treasury and U.S. Agency indexes, including Treasuries and U.S. agency debentures.
The Bloomberg U.S. Government/Credit Index measures U.S. dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury.
The MSCI All Country World Index (ACWI) is a free-float-adjusted, market-capitalization-weighted index that measures equity market results in global developed and emerging markets. It consists of more than 40 indexes in developed and emerging markets.
The MSCI All Country World Index (ACWI) ex USA is a free-float-adjusted, market-capitalization-weighted index that measures equity market results in global developed and emerging markets, excluding the United States. It consists of more than 40 indexes in developed and emerging markets.
The MSCI All Country World Small Cap Index is a free-float-adjusted, market-capitalization-weighted index that measures equity market results of smaller capitalization companies in developed and emerging markets.
The MSCI EAFE (Europe, Australasia, Far East) Index is a free-float-adjusted, market-capitalization-weighted index that measures developed equity market results, excluding the United States and Canada.
The MSCI World Index is a free-float-adjusted, market-capitalization-weighted index that measures equity results in developed markets. It consists of more than 20 indexes in developed markets.
The MSCI World Index ex USA is a free-float-adjusted, market-capitalization-weighted index that measures equity results in developed markets, excluding the United States. It consists of more than 20 indexes in developed markets.
The S&P 500 Index is a market-capitalization-weighted index that represents approximately 500 widely held common stocks.
The S&P Target Date indexes are a series of indexes composed of different allocations to stocks, bonds and short-term investments that reflect reductions in potential risk over time.