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American Funds EuroPacific Growth Fund: A Review

  
  
  

You can hardly turn on the news or open the newspaper without seeing some story about the debt issues in Greece and the rest of the Eurozone. The economic issues facing these countries caused quite a bit of investor fear in 2011 and helped lead many international mutual funds to experience losses of 10% or more.

With so much focus on Europe, it’s not surprising that many of the conversations we are having with our members are at least partially centered on their exposure to international markets and the risks involved with those investments. While we agree that international markets do face risks, we believe that international exposure is still an important part of many portfolios and we are confident that experienced fund managers can successfully navigate these difficult waters over the long term.


One specific fund our members have called to discuss is the American Funds EuroPacific Growth Fund, which is a commonly offered international fund in 401(k) plans. Here’s how we see this fund.

Please note that this does not constitute investment advice, nor is this article  a recommendation for American Funds EuroPacific Growth Fund. This fund may not be appropriate for you, based on your risk level or investment objectives.  Funds with more concentrated exposure to emerging market investments will be subject to the additional risks of holdings such investments, including potential liquidity risks associated with less developed markets and greater socio-economic uncertainties than might exist in investments in developed countries. Please be sure that any fund you purchase meets your individual needs or circumstances. Call the Smart401k team to find out more about choosing appropriate investments for your individual situation.

Fund Management

One of the key factors looked at when evaluating a mutual fund is the manager. When a manager has been with a fund for an extended period of time you can see what level of performance they have been able to achieve in different market environments. One of the unique things about American Funds is that they use a management-team approach instead of having just one or two managers. Under this approach each manager is designated a certain segment of the international markets for which they are responsible for the investment decisions.

There are some views that this approach is bad – as it makes it difficult to know who is actually making the most positive or negative contribution to the fund, but other factors surrounding the management team can help you evaluate their level of quality. In looking closely at the management team of this fund you can see that most of the mangers have been with the fund for more than five years, with several having more than 15 years of experience at Europacific Growth. This team also received Morningstar’s International Equity Fund Manager of the Year award in 2009.

Diversification

As the name EuroPacific Growth Fund would suggest, the majority of this funds holdings are in Europe and the Asia-Pacific regions. According to Morningstar.com (as of 12/31/11) this fund had approximately 55% of the portfolio invested in Europe and 37% in Asia. The remainder of the portfolio is spread throughout North and South America. This fund further diversified its holdings by investing roughly 20% of the portfolio in companies from emerging markets. Relative to other Foreign Large Cap International Funds, American Funds EuroPacific Growth fund has a lower than average allocation to Europe and higher than average exposure to Asia and Emerging Markets. This type of global diversification allows investors to have exposure to markets that are doing well while limiting exposure to the poor performing regions of the world.

Given what we have discussed above and in light of the Fund’s experienced management team, we’ve felt comfortable recommending American Funds EuroPacific Growth Fund for portfolios when we believe large-cap international stock exposure is needed.  If you have any questions please contact our team of advisers at 877.627.8401 or email info@smart401k.com.

Joe McCulloch, Senior Investment Adviser

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Smart401k is a web-based investment advisory service providing unbiased recommendations to help people invest in employer-sponsored retirement plans. Smart401k provides service to nearly 11,000 clients who collectively have more than $2 billion in assets. Plan participants receive personalized, fund-specific investment recommendations and the support of professional investment advisers available to discuss all investment questions. Based in Overland Park, KS, Smart401k is online at www.Smart401k.com.

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