As always, this story is meant to help retirement savers make good choices among the funds that are available in their 401(k) plan. Unless your retirement savings plan offers a self-directed brokerage window, your investment choices are limited to what’s offered in your plan. (One in five of the plans that Vanguard administers offers a brokerage window, according to the firm, one of the largest 401(k) plan administrators in the U.S.) That means you must make smart choices, keeping in mind your tolerance for risk and your time horizon.
The funds we highlight here are the 13 most popular actively managed funds in 401(k) plans. We don’t analyze the index funds that are hugely popular in 401(k) plans because the decision to invest in one typically hinges mostly on whether you want exposure to a particular asset class— U.S. stocks, say, or foreign shares. But actively managed funds are different. Some are better than others. Managers change, which can affect performance. And sometimes good funds lag the broad market for good reason—say, if a fund follows an investment style that is temporarily out of favor.
In the fund reviews that follow, we refer to returns and data for the share class that is available to most investors. Your retirement savings plan may offer a different share class, with slightly different returns and expense ratios, depending in part on the overall size of the plan. Returns and other data are through December 3.
American Funds EuroPacific Growth: BUY
We don’t write about American Funds often because its funds traditionally charge a sales fee and are adviser-sold. (A few brokers, including Fidelity and Schwab, now offer a no-fee share class for self-directed investors.)
But American funds are widely held in 401(k) plans, and EuroPacific Growth is the most popular foreignstock fund. It’s a solid choice. Over the past five and 10 years, it outpaced the MSCI EAFE index, which tracks foreign stocks in developed countries.
Ten experienced managers work independently, managing their own portion of the fund’s assets. Each manager looks for high-quality companies with good long-term growth prospects in Europe and the Pacific Basin. Japan, the Netherlands and China are the fund’s biggest country exposures. With a hefty $181 billion in assets, the fund invests mostly in large companies. ASML Holding, Reliance Industries and Sea Limited are top holdings.
American Funds Growth Fund of America: BUY
The buy rating here comes with a caveat: Although Growth Fund of America, which invests in large, growing companies, has outpaced the S&P 500 over the past three, five and 10 years, the fund is just average next to its peers. In fact, its three- and five-year annualized returns rank below average among large growth funds.
That’s partly because although the fund’s 13 managers focus on big growth themes—such as electric vehicles— they also invest in cyclical companies and turnaround situations with good growth prospects. Tesla, Microsoft and Netflix were top holdings at last report. The strategy provides a smoother ride: Volatility has been below average relative to large growth funds over the past five and 10 years.
Dodge & Cox Stock: BUY
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