Most U.S. equity style boxes are highly correlated to one another
Five-year correlation of U.S. equity funds by style box
Source: Morningstar. Correlations for the five years ended September 30, 2018.
Correlation is a statistical measure that determines how assets move in relation to each other. A positive number means the assets move in the same direction, and a negative number means they move in opposite directions.
— Craig Duglin
Senior Product Manager, Capital Group
Since participants only choose a few funds on average ...
Hypothetical charts for illustration purposes only.
... consider offering broader funds instead of one fund per style box.
Consider including a dividend-oriented fund in the lineup. Historically, higher yielding equity funds have been more resilient in down markets. Funds focused on dividends have offered:
Higher yielding equity funds have been less volatile
20-year annualized return and standard deviation of actively managed U.S. equity funds by yield
Source: Capital Group, based on Morningstar data as of December 31, 2017. Funds include actively managed funds in the U.S. Large Growth, Large Blend and Large Value categories. Top-yielding funds were those funds whose distribution rates ranked in the top quartile. Other funds were all remaining funds.
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.
This article illustrates the number and type of funds that a plan might offer; it does not describe participants' asset allocations.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
Past results are not predictive of results in future periods.