American Funds Capital Income Builder: Is It A Strong Global Allocation Fund?


Being a global investor has advantages over staying in one country. Image source: Getty Images.

Retirement investors with long-term horizons know the importance of having a well-diversified portfolio that includes investments from the United States and the rest of the world. The Capital income generator (NASDAQMUTFUND: CAIBX) American Funds is a global allocation fund that seeks to provide current and growing income and capital appreciation by holding a combination of stocks and bonds. With over $ 100 billion in assets and nearly 3 million shareholder accounts, American Funds Capital Income Builder is a popular way to put private equity to work. Below we’ll take a closer look at the fund to see if it’s right for you.

Capital Income Builder Performance

The Capital Income Builder has produced strong long-term returns for investors. Over the past 15 years, the fund has produced an average annual return of over 7%, placing it in the top quarter of its peer group of similar mutual funds. More recently, Capital Income Builder has stood out even more, finishing in the top 10% in the last one, three and five year periods.

As an income oriented fund, Capital Income Builder has a rather high distribution yield than some other funds. Currently, its 30-day yield as calculated for the Securities and Exchange Commission is approaching 3%. Occasional distributions of capital gains on investments further increase the overall return on the distribution.

Fees and Expenses at Capital Income Builder

Capital Income Builder’s annual expenses depend on the class of shares you own. Class A shares available to most investors have an expense ratio of 0.59%, which is less than half the average for similar funds. However, this ratio includes a 12b-1 fee to cover marketing and sales costs.

More importantly, like many US fund offerings, Capital Income Builder charges up to 5.75% a sales charge when you buy Class A stocks. You can pay a lower charge if you have more money. to invest, with lower fees for those who have $ 25,000 or more to open an account. Other share classes have different fees, and the retirement class options that are available for some 401 (k) plans and other institutional retirement funds do not charge a sales charge and have significantly lower expenses.

What Capital Income Builder owns

Capital Income Builder currently holds around 80% of its portfolio in stocks, the remainder in bonds and 2% in cash. US stocks make up most of the bond exposure, but only about half of the fund’s equity positions, with almost 40% allocation to international investments. Consumer Staples and Financials are the fund’s favorites, but the fund has diversified exposure to a multitude of different sectors.

On the bond side, Capital Income Builder’s holdings are split between U.S. government bonds and corporate bonds, with a small portion of bonds backed by mortgages and other assets. Most holdings are of good quality and the duration of the securities leans towards the shorter side of the bond market.

Who manages Capital Income Builder?

Capital Income Builder has a large team of managers, with James Lovelace and Joyce Gordon having the longest track records with the fund, dating back 15 years or more. The fund’s advisor is Capital Research and Management Company, of which the 13 of its current managers are part.

Is Capital Income Builder a smart buy right now?

One of the main reasons Capital Income Builder generated good returns is that it was fortuitous in its timing. International stocks have recently fallen behind US stocks, but throughout most of the fund’s history, foreign stocks have outperformed their domestic counterparts. In addition, favorable bond market conditions meant that the fund’s bond holdings contributed to overall performance. This could change once interest rates start to rise, although the fund’s focus on short-term portfolio bonds could limit losses.

In addition, the sales load of Capital Income Builder is high compared to alternatives with other fund companies. Paying up to $ 575 upfront on a $ 10,000 investment is a big hit, especially when it comes to just the broker who sold you the fund. The fund’s returns have remained above its benchmark nonetheless, and although it will take time to catch up with the downward pressure of a load, Capital Income Builder has managed to get the job done for long-term investors. In addition, its annual expenses are quite low for an actively managed balanced fund.

American Funds Capital Income Builder has a respectable history, but it’s far from the only choice retirement investors should consider. With other funds offering no sales charges and potentially lower fees, it’s worth looking at different fund companies to see if what you’ll see there is better than what Capital Income Builder will offer you.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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