American Funds SMALLCAP World Fund

Scorecard
5 / 5 Stars
Lipper
5 5 3 5 2
Zacks Investment Research
2 (Buy)
Standard & Poor's
4 / 5 Stars
TheStreet.com
C- (Hold)

U.S. News evaluated 304 World Stock Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Note: Profile written for different share class.

Performance

The fund has returned 26.76 percent over the past year, 12.29 percent over the past three years, 25.71 percent over the past five years, and 10.01 percent over the past decade.

Trailing Returns Updated 02.28.2014
Year to date 4.0%
1 Year 26.8%
3 Years (Annualized) 12.3%
5 Years (Annualized) 25.7%
10 Years (Annualized) 10.0%

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Summary

What differentiates American Funds Smallcap World fund from similar global stock funds is in its name. The fund’s small-cap holdings generally don’t fare as well as large-cap companies during downturns, but the fund is recovering from 2008—which yielded the second-worst annual return in its history.

As of March 05, 2014, the fund has assets totaling $25.54 billion. Its portfolio consists almost entirely of small-cap companies with market capitalizations of $3.5 billion or less in the United States and throughout the world.

The fund holds more than 500 stocks in a broad range of sectors, and it also has a higher-than-average weighting in emerging markets compared with other world-stock funds. Small-cap stocks performed well over the last decade, but this fund underperformed other small-cap focused funds during the rally. Morningstar points out that its average turnover is much higher than many of its peers. Through the end of the third quarter, though, the fund's returns rank among the highest in the world-stock category, mostly because of its small-cap tilt. The fund has returned 26.76 percent over the past year and 12.29 percent over the past three years.

As of the end of June, about half of the fund’s holdings are stocks of foreign companies. The fund managers are known for shifting the balance between U.S. companies and overseas companies. For example, in March 2008, the fund held less than a third of its assets in U.S. companies because the managers believed foreign companies were a stronger bet. The fund “tends to be one of the most aggressive funds on the American Funds platform,” according to Raymond James. The fund has returned 25.71 percent over the past five years and 10.01 percent over the past decade.

Investment Strategy

The fund normally invests in companies with market capitalizations of $3.5 billion or less. Management looks for companies that “we really think are going to grow and flourish and be on their way to being the next dominant player in their given industry,” says Dale Hanks, vice president with Capital Research and Management.

Role in Portfolio

Morningstar assigns the fund a “supporting player” role in a portfolio.

Management

All American Funds are overseen by a group of managers. This fund is run by a team of 10 portfolio managers from the fund’s adviser, Capital Research and Management. “By tying compensation to rolling four-year returns, the American Funds has created an incentive for its investment professionals to concentrate on the long-term results,” according to Raymond James.

Fees

American Funds SMALLCAP World Fund has an expense ratio of 0.82 percent.

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Risk

Small-cap companies are usually harder to value and can have larger price swings than large-cap companies, while investments in emerging markets also are harder to predict and more likely to fluctuate.

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Fund Opinions

The fund's Value Line Overall Rank, a measure of risk-adjusted performance and relative growth in fund returns, is 3 on a scale of 1 to 5, with 1 being the best and 5 the worst.

Value Line 2014-03-12

The fund's Value Line Growth Persistence rank, which awards funds that consistently outperform their broad universes, is 2 for one year, 3 for five years, and 1 for 10 years. Scores are on a 1 to 5 scale, with 1 being the best and 5 the worst.

Value Line 2014-03-12

The fund's Value Line Risk Rank, a measure of volatility, is 3 on a scale of 1 to 5, with 1 being the least volatile and 5 the most.

Value Line 2014-03-12

In the January 2010 edition of Morningstar's Fund Family Reports, John Coumarianos says, "We’ve long considered this fund our least favorite in American’s lineup, so we’re not surprised by its underperformance."

Morningstar 2010-06-02

In the annual Lipper/Barron’s Fund Families Survey for 2009, American Funds ranks 31st out of 61 fund families surveyed.

Lipper

Morningstar gives this fund a stewardship rating of A on a scale of A to F, saying, “This fund is supported by a fund-holder-focused corporate culture and a fund board led by an independent chairman. Its fees also are reasonable. Overall, it’s a strong steward of capital.”

Morningstar

In the annual Lipper/Barron’s Fund Families Survey for 2009, American Funds ranks 31st out of 61 fund families surveyed.

Lipper

Morningstar gives this fund a stewardship rating of A on a scale of A to F, saying, “This fund is supported by a fund-holder-focused corporate culture and a fund board led by an independent chairman. Its fees also are reasonable. Overall, it’s a strong steward of capital.”

Morningstar