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RETIREMENT PLAN INVESTOR

Use your plan ID (available on your account statement) to determine which employer-sponsored retirement plan website to use:

IF YOUR PLAN ID BEGINS WITH IRK, BRK, 1, 2 OR 754

Visit americanfunds.com/retire

IF YOUR PLAN ID BEGINS WITH 34 OR 135

Visit myretirement.americanfunds.com

Portfolio construction

Fresh perspective on global equities

Flexibility is the new diversification

When building a diversified portfolio, globally flexible strategies are more important than ever, yet they remain an underutilized tool in the portfolio construction process.

The Capital Group Portfolio Consulting and Analytics team analyzed nearly 900 portfolios from January 1, 2021 to April 30, 2021 and found that financial professionals may be underallocated to global equity strategies.*

We analyzed nearly 900 advisor portfolios from January 1, 2021 to April 30, 2021. Of the 871 portfolios specifically analyzed for global flexibility, the average allocation to global equities was 6%. Fifty-nine percent of financial professionals had no global allocation at all.

Those seeking the best global opportunities may want to consider funds with flexible mandates that allow their managers to choose from the best companies — no matter where they are located.

Look beyond the fund flows and index returns

If you focus strictly on domicile-centric index returns as an indicator, the U.S. has been the best place to invest over the past decade — but that's only telling a small part of the story. Allowing fund flows and index returns to determine the geographic location in which mutual fund portfolio managers may invest could lead to missing out on attractive opportunities in global equities.

International equities have lagged U.S. equities by the widest margin in years

Rolling 10-year relative returns per Morningstar, as of 12/31/20
In this chart, there is a dark blue line for international total return minus U.S. total return and a light blue bar chart for international fund flows. International total returns are tracked from 1983 through December 2020. International total returns lagged U.S. total returns by the widest margin in February 1999, trailing by 1,370 basis points. International total returns trailed U.S. total returns by 897 basis points in December 2020. This chart also shows international fund flows through the end of December 2020, when international funds posted $15.2 billion in outflows.
International total return minus U.S. total return reflects the excess of the 10-year rolling total return of MSCI ACWI ex USA less the
10-year rolling total return of the S&P 500. Prior to 2009, the MSCI World Index ex USA was used in place of the MSCI ACWI ex USA. The Y axis on the left side quantifies the total excess return realized over the 10-year rolling periods.
Source for International fund flow data: Morningstar. Sum of net investment flows (purchases less redemptions) within the following categories of open-ended funds: Foreign Large Blend, Foreign Large Growth, Foreign Large Value, Foreign Small/Mid Blend, Foreign Small/Mid Growth and Foreign Small/Mid Value. The Y axis on the right side shows flows in millions of dollars.

The majority of the top 50 stocks per year since 2011 have been ex-U.S.

Over the past 10 years, 75% of the top 50 companies were domiciled outside of the United States. In the portfolio construction process, the ability to break free of geographic borders and pick investment managers with a global mindset and the capacity to implement a flexible approach will open the door to a wider pool of companies that otherwise may be constrained by a country-level bias.

Top 50 stocks each year by company location

This chart has a blue square for emerging markets, ex China, a lighter blue square for China, a grey-blue square for developed international and a sea green square for United States. This chart tracks the make-up of the top 50 companies since 2011 until  December 31, 2020. Over the past 10 years, 75% of the top 50 companies were domiciled outside of the United States.
Sources: RIMES, MSCI as of 12/31/20. Returns in U.S. dollars. Top 50 stocks are the companies with the highest total return in the MSCI ACWI each year.

Global flexibility offers potential for better outcomes

Exposure to global equities can help improve the breadth and depth of investment opportunities for skilled active managers. From October 1, 2000 through September 30, 2020, top-quartile active global mutual funds had significantly greater excess returns than the S&P 500 and MSCI ACWI and widely outpaced their average-performing peers.

Actively managed mutual funds with top-quartile returns

Excess returns over 20-year period ended September 30, 2020
This chart shows the excess returns by actively managed global equity mutual funds over the 20-year period ended September 30, 2020. The category average lagged the S&P 500 by 136 basis points, while category average excess returns were 0.02% versus the MSCI ACWI Index. The top-quartile actively managed mutual funds posted excess returns of 3.21% and 4.59% against the S&P 500 and MSCI ACWI, respectively.
Source: Capital Group. U.S. index — Standard & Poor's 500 Composite Index; Global index — MSCI All Country World Index (ACWI). Data includes all active global mutual funds in the Morningstar World Stock category.

What this means

Country of domicile may not be the most effective way to evaluate companies. Global flexibility offers the potential for improved outcomes and is a crucial consideration when constructing portfolios.

Global flexibility in action

A hypothetical allocation of 50% New Perspective Fund® (NPF) and 50% Capital World Growth and Income Fund (WGI)® would have delivered higher annualized returns over the 20-year period ended December 31, 2020 compared to indexes representing other potential equity allocations. The combination of NPF and WGI also would have resulted in largely stronger risk metrics, measured by standard deviation and Sharpe ratio over this annualized 20-year period.

Figures shown are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely.
For current information and month-end results, please read important investment disclosures.

Hypothetical equity allocation results for the 20 years ended December 31, 2020

Basis points (bps) represent a lead or lag in the American Funds blended hypothetical portfolio versus indexes.
This chart shows the annualized returns over a 20-year period ended December 31, 2020, as well as the standard deviations and Sharpe ratios for a hypothetical portfolio and three broad-based indexes. The hypothetical portfolio is made up of 50% New Perspective Fund and 50% Capital World Growth and Income Fund. The annualized return over 20 years is 9.07%. The standard deviation is 15.28% and the Sharpe ratio  is 0.55.   In comparison, the MSCI World Index delivered 6.02% in annualized returns, a standard deviation of 15.62% and a Sharpe ratio of 0.36 over the 20-year period. The hypothetical portfolio outpaced the MSCI World Index by 305 basis points.  The MSCI ACWI ex USA delivered 5.23% in annualized returns over the 20-year period, a standard deviation  of 17.33% and a Sharpe ratio of 0.30. The hypothetical portfolio outpaced the MSCI ACWI ex USA by 384 basis points.  And the S&P 500 Composite Index delivered annualized returns of 7.47% over the 20-year period, standard deviation of 15.08% and a Sharpe ratio of 0.46. The hypothetical portfolio outpaced the S&P 500 Composite Index by 160 basis points.
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. Sharpe ratios use standard deviation and excess return to determine reward per unit of risk. The higher the number, the better the portfolio’s historical risk-adjusted performance.
Sources: Capital Group, MSCI and Standard & Poor’s.

ANWFX (F-2)

New Perspective Fund

The fund takes a flexible approach to global growth. It seeks to take advantage of evolving global trade patterns by predominantly investing in companies that have potential for growth in capital. It invests primarily in multinational companies with a meaningful share of their sales and operations outside of their home countries. This approach provides the strategy’s portfolio managers with geographic flexibility and the ability to navigate different markets.

WGIFX (F-2)

Capital World Growth and Income Fund

The fund’s investment objective is to create long-term growth of capital while providing current income. This strategy has the flexibility to seek growth and income opportunities around the world. It invests primarily in seasoned companies, including those paying regular dividends and those with attractive growth prospects.

Explore more on global flexibility

Test your portfolio’s global flexibility

Get a personalized portfolio consultation.

Portfolio Construction Concepts

*The Capital Group Portfolio Consulting and Analytics team analyzed nearly 900 portfolios in consultation with financial professionals from January 1, 2021 to April 30, 2021. Of the 871 portfolios specifically analyzed for global flexibility, 353 had allocations to the Morningstar World Large Blend, Value and/or Growth categories. These 353 portfolios comprised 40.53% of all portfolios analyzed, while 518 portfolios (or 59.47%) did not have an allocation to global equity strategies. To determine the average allocation to global equity strategies, the team took a weighted average of the allocation to global equities across all 871 portfolios. They calculated that weighted average by multiplying 40.53% (percentage of portfolios that had allocations to global equity strategies) by their average allocation (15.11%) and then added the product of those two numbers to the product of 59.47% (percentage of portfolios that had no allocations to global equity strategies) by 0% (since those 59.47% of portfolios had 0% allocated to global equities). The sum of those two products is 6.1%: the average allocation to global equities across all 871 portfolios analyzed from January 1, 2021 through April 30, 2021.

Figures shown are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. View fund expense ratios and returns.

Returns shown at net asset value (NAV) have all distributions reinvested.

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.

Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries.

MSCI has not approved, reviewed or produced this report, makes no express or implied warranties or representations and is not liable whatsoever for any data in the report. You may not redistribute the MSCI data or use it as a basis for other indices or investment products.

Standard & Poor’s 500 Composite Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2021 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part is prohibited without written permission of S&P Dow Jones Indices LLC.

©2021 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar, its content providers nor Capital Group are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

MSCI All Country World ex USA Index is a free float-adjusted market capitalization-weighted index that is designed to measure equity market results in the global developed and emerging markets, excluding the United States. The index consists of more than 40 developed and emerging market country indexes. This index is unmanaged, and its results include reinvested dividend and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or taxes.

MSCI World Index measures stock market results in more than 20 developed markets. MSCI World Index results reflect net dividends.

Standard & Poor’s 500 Composite Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. This index is unmanaged, and its results include reinvested dividend and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or taxes.

There may have been periods when the funds have lagged the index(es). Market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.

Investment results assume all distributions are reinvested and reflect applicable fees and expenses.

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When applicable, investment results reflect fee waivers and/or expense reimbursements, without which results would have been lower and net expenses higher. This information is provided in detail in the shareholder reports. Read details about how waivers and/or reimbursements affect the results for each fund. View results and yields without fee waiver and/or expense reimbursement.

1Certain share classes were offered after the inception dates of some funds. Results for these shares prior to the dates of first sale are hypothetical based on the original share class results without a sales charge, adjusted for typical estimated expenses.
        ● Class F-2 were first offered on 8/1/2008.
Results for certain funds with an inception date after the share class inception also include hypothetical returns because those funds' shares sold after the funds' date of first offering.
View dates of first sale and specific expense adjustment information.

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