Alec Lucas: Investors looking for equity funds with resilient portfolios have two great options in Gold-rated American Funds American Mutual and Gold-rated American Funds Washington Mutual. Both have competitive fees and veteran managers who are skilled at using American Funds signature multimanager system, which divides each fund's asset base into separately managed sleeves of the overall portfolio. Other than high portfolio turnover, which is frowned upon, managers can run their sleeves in line with their own investment styles. Those styles, though, must adhere to each fund's mandate.
Here, too, there are lots of similarities. Both funds have risk-averse mandates dating to the 1950s that also preclude investment in companies deriving most of their revenue from alcohol or tobacco products. Both funds focus on domestic, blue chip, dividend-paying firms, capping investment in nondividend payers at 5% of assets.
Where they differ is in their ability to hold cash and bonds. When compelling equity investment opportunities are lacking, American Mutual can and does hold both, often allocating 10% to 15% of assets to cash and bonds combined. Washington Mutual, in contrast, is mandated to remain fully invested in stocks and stays below its 5% cap on cash.
The risk with American Mutual is that its managers could become too conservative in allocating assets to cash and bonds; the risk with Washington Mutual is that its managers don't have the ability to buy cash and bonds in an equity market with stretched valuations. Both funds have managers who have been able to navigate those respective risks well and to make good long-term stock picks. The two funds tend to hold up better than the S&P 500 in equity market downturns and are fine, long-term choices for investors who want to preserve and grow their capital.