Best 401(k) Funds From American Funds
Kiplinger's Personal Finance|April 2021
We rate the most popular actively managed offerings for retirement accounts.
NELLIE S. HUANG

AMERICAN FUNDS ARE POPULAR CHOICES for retirement savers. Eight of the firm’s stock funds and six of its target-date portfolios land among the 100 most popular 401(k) funds, a list compiled by BrightScope, a financial data firm that rates workplace retirement plans. In this article, the fourth in a series, we analyze those offerings. (For our view on Vanguard funds, see “Best 401(k) Funds From Vanguard,” Jan.; for our take on Fidelity funds, see “Best 401(k) Funds From Fidelity,” Feb.; and see our T. Rowe Price roundup, “Best 401(k) Funds From T. Rowe Price,” in the March issue.)

The firm behind American Funds, Capital Group, needs some introduction because it has a particular approach. Each fund is run by multiple managers, from as few as two to more than a dozen. But each individual runs his or her own slice of the fund’s assets independently. And each one owns a personal chunk of shares in the fund, in keeping with the firm’s culture.

Below, we review the American Funds Target Date Retirement funds as a group, and eight actively managed funds individually, and rate them “buy,” “sell” or “hold.” All data, including symbols, refer to the share class that’s most accessible to the average investor, in this case Class A. Your 401(k) plan may offer an institutional share class, which may charge a lower expense ratio. All returns are as of February 5.

AMERICAN FUNDS TARGET-DATE RETIREMENT FUNDS: BUY

These target-date funds are fine choices for investors who want an expert to handle their retirement investments. You choose the fund with the year that’s closest to when you plan to retire; American Funds does the rest.

Like target-date funds from other fund families, American’s target-date retirement funds hold other parent-company funds. The 2060-dated fund, for investors with 40 working years ahead of them, holds 86% of its assets in stock funds that invest mostly in large, growing U.S. firms and the rest in bond funds and cash. As the target year nears, the fund’s stock exposure shrinks and tilts toward funds that focus on steadier, slow-growth companies. After retirement, the glide path continues to shift for another 30 years (until about age 95), when its stock holdings end up at roughly 30% of assets (mostly in funds that invest in dividend-paying stocks), with the rest in bond funds and cash.

AMERICAN FUNDS AMCAP FUND (SYMBOL AMCPX, EXPENSE RATIO 0.69%): HOLD

AMCAP’s top holdings include the usual suspects for funds that invest in large, growing companies: Netflix, Microsoft, Facebook and Amazon .com. And yet the fund has lagged its peers over the past one-, three-, five-and 10-year periods on an annualized return basis. Eight managers run the fund, investing in companies of any size with sustainable competitive advantages and a reasonable stock price. The fund favors health care, technology and communications services firms. But its slug of midsize and small-company stocks (28% combined, compared with 15% for similar funds) and its ample cash position have been a drag in recent years. That said, when smaller stocks rallied in late 2020, the fund did, too.

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