At American Funds, we recognize that limiting the volatility of returns and preserving assets may be high priorities for investors who are:
- Near, or in, retirement, or
- Drawing on investment income
For these investors, we offer a diverse set of funds designed to manage volatility and provide downside protection: American Funds Insurance Series (AFIS) managed risk funds.1
Our AFIS managed risk funds combine a diverse asset mix with a dedicated risk management strategy that seek to:
- Stabilize portfolio volatility
- Capture growth in up markets
- Defend against losses during sustained market declines
AFIS managed risk funds may be worth considering for investors with a lower tolerance for volatility who are seeking potentially smoother returns.
Designed to Offer Results That Exchange Some Upside for Potentially Lower Volatility and Limited Downside
Managed risk funds are designed to experience a narrower dispersion of returns compared to a hypothetical stock-heavy mutual fund (grey curve).
AFIS Managed Risk Funds Seek to Reduce the Impact of Stock Market Volatility and Declines
Each AFIS managed risk fund provides investors a diversified portfolio combined with a dynamic risk management strategy. This combination seeks to generate strong risk-adjusted returns over full market cycles.
Core: AFIS Portfolio Allocation
The “core” of each AFIS managed risk fund is an allocation among AFIS funds that seeks to achieve a diversified portfolio through investments in multiple asset classes.2
This asset allocation helps manage risk through diversification as each asset class often reacts differently to changing market conditions. The fixed income allocation, for instance, may provide an initial level of protection and cushion against stock market declines.
Overlay: Managed Risk Strategy
In addition to asset allocation, the AFIS managed risk funds integrate an additional approach to risk management that may be appropriate for many investors.
The managed risk strategy3 constantly monitors fund volatility and dynamically adjusts the fund’s equity exposure via exchange-traded futures4 to seek gains when markets rise and limit losses during market declines with high volatility.
Risk: Monitored Constantly and Managed Responsively
The managed risk strategy consists of two elements: volatility management and capital protection.
… seeks to stabilize portfolio volatility.
Volatility management aims to keep the risk level of a portfolio from increasing significantly during periods of market turbulence.
With that in mind, our managed risk strategy operates within defined parameters and continuously monitors the market to deliver responsive risk management.
If market volatility increases significantly, short equity futures are established to reduce the equity exposure of the fund. In addition, U.S. Treasury futures are utilized for cash and volatility management.
When market volatility declines, holdings of futures are adjusted to restore the equity exposure and preserve market participation.
… seeks to defend against losses during sustained market declines.
Because sustained market declines can occur without a preceding increase in volatility, our managed risk strategy has an additional risk management capability. When combined with volatility management, this can be very helpful to the investor.
The capital protection element uses short equity futures, and the gains from those positions can help reduce losses during sustained market declines. This protection level, which can be in place with or without the presence of heightened volatility, is monitored and adjusted based on market conditions so that the fund may participate in subsequent recoveries.
In periods of sustained low volatility, there may be no futures position in place, as neither the capital protection nor the volatility management elements may be active.
AFIS Managed Risk Funds Align with a Broad Range of Investment Objectives
AFIS managed risk funds do not eliminate returns volatility or sequence-of-returns risk, but they are specifically designed for investors who would like to reduce these risks. We view these funds as a continuation of our commitment to being aligned with improving investor outcomes.
We offer eight managed risk funds focused on growth, growth and income, high-quality stocks, international stocks or a balance of stocks and bonds. Each fund consists of underlying AFIS equity and fixed income funds, as well as the managed risk strategy overlay.2
Managed risk funds portfolio managers/ Years of experience5
Alan Berro 31
James Mulally 41
Subadviser portfolio manager/ Years of experience5
Adam Schenck 12
Milliman Financial Risk Management