Smooth Sailing in Global Markets for This Fund

The following is our latest Fund Analyst Report for American Funds New Perspective ANWPX. Morningstar Premium Members have access to full analyst reports such as this for more than 1,000 of the largest and best mutual funds. Not a Premium Member? Gain full access to our analyst reports and advanced tools immediately when you try Morningstar Premium free for 14 days.

American Funds New Perspective’s time-tested focus on firms benefiting from changing global trade patterns merits a Morningstar Analyst Rating of Gold.

Current worries over the impact of tariffs are not new to this fund. Born in the early 1970s, it has lived through multiple market cycles and encountered various protectionist measures, such as the proliferation of export restraints in the auto industry of the 1980s. Granted, longest-tenured manager Robert Lovelace did not start running diversified money here until 2000, but he began as analyst here in the 1980s and worked alongside five managers whose tenures began in the 1970s.

Regardless of market climate, American’s multimanager system sets up this fund for long-term success. Other than sticking to companies that receive at least 25% of their revenues from outside their home region and have at least a $3 billion market-cap float at time of purchase, this fund’s seven named managers are free to run their separate sleeves of the overall portfolio in line with their own styles. Here those styles coalesce in buying growth when it is mispriced or misunderstood but still include considerable variety. Jonathan Knowles, for example, focuses on firms with high returns on equity while Andraz Razen, whom Capital Group first publicly named in July 2018, is more willing to buy cyclical companies that have stumbled of late.

The portfolio stays grounded in multinational blue chips but isn’t lacking in aggressive picks, as the presence of Tesla TSLA attests. Since entering the portfolio in early 2015 and becoming a top 20 holding by June 2018, Tesla’s struggles to turn a profit have led it to be more than 3 times as volatile as the MSCI All-Country World Index.

Yet, thanks to its globally diversified portfolio, the fund has hardly missed a beat. Its trailing three-year 15% annualized return beat the index by 1.6 percentage points and placed in the world large-stock Morningstar Category’s top quintile. That’s in keeping with the fund’s long-term results.

There’s little reason to believe the fund can’t build on its record.

Process Pillar: Positive | Alec Lucas, Ph.D. 10/09/2018 The fund's singular focus combined with its willingness to adapt merit a Positive Process Pillar rating. Since its March 1973 inception, the fund has sought to invest in firms poised to benefit from changing global trade patterns. While that mission has endured, the fund's methods have evolved with the market. In its early days, the investable universe consisted largely of the constituents of the MSCI World Index, the fund's longtime benchmark. As the global opportunity set broadened to include developing markets, the fund began investing there, too, and in October 2011 changed its benchmark to the MSCI All-Country World Index. The fund can now invest in firms located anywhere in the world if they receive at least 25% of their revenues from outside their home region and have at least a $3 billion market-cap float at time of purchase. Although those requirements lend themselves to a continued emphasis on developed-markets blue chips, the fund's emerging-markets stake has increased in recent years. As of June 2018, it was 10.2% of assets, a bit higher than the fund's mid- to upper-single-digit historical norm.

American's multimanager approach lets the managers play to their strengths. With distinct styles, they can invest in their best ideas or hold cash and wait for compelling opportunities. The combination of separately managed sleeves mutes the overall fund's volatility. Only high portfolio turnover is frowned upon.

Sector and geographic allocations in the fund's roughly 250-stock portfolio are largely a byproduct of its managers' bottom-up analysis. The fund's balance of domestic and foreign stocks also shifts based on where the managers see the best opportunities. Its helping of U.S. stocks has ranged from more than half to less than a fourth of assets during the past three decades and stood at 53.3% in August 2018, up from less than 30% near the U.S. market's 2007 peak.

The fund's managers seek growth across the globe but buy when it is mispriced or misunderstood, often hanging on through subsequent rough patches. For example, they first bought shares of current top-five holding Facebook FB in late 2015 because of swift adoption of its social-network platform and the firm’s greater-than-anticipated growth potential in non-U.S. markets, especially India. As shares of Facebook subsequently plunged in price over concerns about privacy and misuse of data in 2018, the managers held on and even added more.

Since year-end 2012, the fund’s tech weighting has more than doubled to about a fourth of the portfolio. The fund’s high-single-digit semiconductor stake is now one of the world large-stock category’s biggest. Top-10 positions Taiwan Semiconductor Manufacturing and ASML Holding ASML both stand to profit from increasing demand for chips and components used in Internet-connected devices.

Performance Pillar: Positive | Alec Lucas, Ph.D. 10/09/2018 Consistent outperformance earns the fund a Positive Performance Pillar rating. Its trailing returns for the three- to 15-year periods through September 2018 all rank in the world-stock category's top quintile or better. Although the fund struggled in 2016, placing near the category's bottom quintile, it has finished in the top half of the peer group in every other calendar year in the past decade. Since its 1973 inception and during longest-tenured manager Robert Lovelace's 15-plus years, it has trounced its typical category rival, the MSCI All-Country World Index, and its former benchmark, the MSCI World Index.

The fund has amassed this record without incurring more volatility than its average peer or index. In fact, its Morningstar Risk rating for the trailing 10-year period through September 2018 is below average. It also has captured nearly 105% of the MSCI All-Country World Index's upside and 93% of its downside since Lovelace joined the fund in December 2000.

The fund's focus on multinational blue chips has seldom hurt shareholders. In its 40-plus calendar years, the fund has lost money in only seven (1974, 1990, 2000-02, 2008, 2011). In each of those years, the fund lost significantly less than the benchmark, except for 2011. Even then, the fund held its own during 2011's peak-to-trough plunge but lagged in the subsequent rebound and lost 7.6% for the year, versus the index's 5.5% drop.

People Pillar: Positive | Alec Lucas, Ph.D. 10/09/2018 American Funds' multimanager approach helps to handle this fund's $85 billion asset base, the world-stock category's second largest. The fund's Positive People rating reflects its systemic strengths as well as the managers' experience, ability, and fund ownership.

Capital Group, the parent of American Funds, divides these assets between management teams from subsidiaries Capital International Investors and Capital World Investors. Longest-tenured manager Robert Lovelace, who started here in 2000, heads up the whole fund and CII’s team, composed of Noriko Chen and Steven Watson. Joanna Jonsson oversees CWI's team of Jonathan Knowles, Brady Enright, and Andraz Razem, whom the firm publicly named in July 2018. Each of the managers, based in the United States, England, and Asia, oversees a separate sleeve of the portfolio, with Lovelace and Jonsson helping to ensure that their investing styles complement one another. For example, Knowles runs a top-heavy portfolio of about 30 stocks with high returns on equity, while Watson sticks largely to value names in a portfolio of 50-60 stocks. They're a veteran group. Each manager has been in the industry for at least 20 years. The CII and CWI teams are both supported by about 50 analysts, with each analyst group also responsible for its own slice of the portfolio.

Each manager has at least $100,000 in the fund, with four investing more than $1 million.

Parent Pillar: Positive | Alec Lucas, Ph.D. 02/28/2018 As a standard-bearer in asset management, Capital Group earns a Positive Parent rating. Widely known in the U.S. for its American Funds open-end lineup, the active manager boasts some of the industry's more reliable equity and allocation offerings. The firm's multimanager system is key to its success. Dividing each fund into independently run sleeves lets managers invest in line with their styles, enhancing diversification and reducing the overall portfolio's volatility. The funds' analyst-led research portfolios help develop the next generation and recruit top talent with the promise of running money from the start. The result is an investment culture marked by lengthy tenures, strong manager fund ownership, and competitive long-term records.

Capital Group has improved its fixed-income approach through greater coordination, external hires, and enhanced risk management. The firm now has the tools to compete with best-in-class fixed-income shops, though its investment professionals could become more seasoned in their use.

Investors have shown renewed interest in American Funds amid the firm's efforts to expand in Europe, Australia, and Asia. The potential for these investors to pour money into the same strategies should incline Capital Group to clarify what would cause it to close a strategy to protect current shareholders, something the firm has said it would be willing to do.

Price Pillar: Positive | Alec Lucas, Ph.D. 10/09/2018 Modest fees earn the fund a Positive Price Pillar rating. The A shares' 0.75% expense ratio, which applies to half of the fund's assets, is 49 basis points below the world-stock, front-load peer median and cheaper than 99% of those peers. It would also place in the cheapest quintile of the category's no-load options. Plus, 13 of the fund's 16 other share classes sport bottom-quintile expense ratios versus similarly distributed rivals. Trading costs are competitive, too. Brokerage fees of 0.03% of average net assets in fiscal 2017 fell below the 0.05% category median.

Capital gains distributions each year since 2013 have hurt investors in taxable accounts, however. These distributions peaked at 6.25% of net asset value in December 2014 and, most recently, clocked in at 5.06% in December 2017.