Morningstar Advisor - Fall 2008 - 33

for the three years ended in December 2007 than they did for the three years ended in December 1997. On average, however, these correlations didn’t increase to a greater degree than did the returns of the typical domestic large-cap fund to the returns of the typical world-stock or foreign large-cap fund. As the world economy has become more connected, large firms in different countries have seen more similarity in stock-price movement. Still, pairings to avoid are Growth Fund of America and New Perspective ANWPX, and Fundamental Investors with either New Perspective or Capital World Growth & Income CWGIX. As for Amcap, American Mutual, Investment Company of America, and Washington Mutual—American’s more-staid domesticstock funds—the correlations of their returns with their international siblings’ was relatively flat or decreased over the same three-year periods. This makes sense, because each of the world-stock funds was invested more heavily overseas in December 2007 than it was 10 years ago. There is one exception: Smallcap World SMCWX. Each of American’s domestic-stock funds has had returns correlate much more highly with those of Smallcap World over the recent three-year period than the three-year period ending in 1997. Now, Smallcap World has a bigger stake in mid- and large-cap firms than it did a decade ago. Chalk that up to the fund’s large asset base, which has forced it to buy larger firms, and those firms’ attractive valuations, which have drawn attention. What We Learned owning more stocks than they did 10 years ago. Overlap between American’s funds was bound to increase, as our study shows. Advisors and their clients who rely on American Funds to meet their asset-allocation needs should favor the family’s most distinctive funds. Offerings such as Washington Mutual and Fundamental Investors should be the most beneficial to the risk-adjusted returns of investors’ portfolios. Funds that are the most vulnerable to asset bloat and ought to be closed—such as Growth Fund of America and Smallcap World—have had a harder time staying distinctive. Advisors using these funds should make sure that overlap has not become a burden on performance. K Greg Carlson is a mutual fund analyst with Morningstar and editor of Morningstar’s American Fund Family Report, a monthly newsletter devoted to analyzing the family’s funds. Investors have piled money into the American Funds in recent years, and with good reason. Despite the influx of cash, the fund shop still earns solid returns for shareholders. But to handle all the assets, American has added managers, which in turn has led the funds to START AHEAD. STAY AHEAD. CFFPINFO.COM � 74% of Worth magazine’s top financial advisors chose the College for their education needs � Graduates report an increase of up to 21% in earnings after completing their CFP® certification or professional designation programs � Over 100,000 graduates, since 1972 � Pass rates over 20% higher than all other competitors on the CFP® Certification Examination � Professional designations in as little as 30 days and certifications in as little as one year � Flexible study options including online, self-study, or classroom instruction Only at the College for Financial Planning. financial planning asset management retirement planning m a s t e r ’s p r o g r a m continuing education Call800.237.9990 Clickwww.cffpinfo.comChat The College for Financial Planning does not certify individuals to use the CFP®, Certified Financial Planner™ and CFP® marks. CFP® certification is granted solely by Certified Financial Planner Board of Standards Inc. to individuals who, in addition to completing an educational requirement such as this CFP Board-Registered Program, have met ethics, experience, and examination requirements. MorningstarAdvisor.com 33

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Morningstar Advisor - Fall 2008

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