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Stock-Picking, Low Fees Boost This World Allocation Fund

Madeline Hume

Madeline Hume: The recent slump in dividend paying stocks hasn't changed our view on American Funds Capital Income Builder. This fund leverages robust building blocks to construct its income-focused portfolio. Unlike a lot of income-focused peers, this fund doesn't rely heavily on credit. Instead, it leans on the classic American Fund strengths of skilled stock-picking and low fees.

The fund's 12 managers run independent sleeves that are overseen by principal investment officer Jim Lovelace. Together with Dave Lee and Steve Watson, Lovelace targets a 70/30 equity/fixed-income split over the long haul. They recently shifted some of the fund's assets from equities to bonds because they expect an increase in stock market volatility. The bond portfolio tends to be focused on high-quality bonds which should provide that cushion if the market does get bumpier.

The fund's 70% allocation to equities is higher than the average world allocation peer so it could still lose more than its category average in a true equity downturn.

The team aims to deliver more income than its category average and it has delivered on that goal over the long term without sacrificing total returns. It helps that the fund's expense ratio of 59 basis points is very cheap compared to its peers. Its skilled equity managers, sensible asset allocation, and low fees earn it a Morningstar Analyst Rating of Silver.