understanding the capital advantage®...10-year average relative rolling large-cap domestic fund...

1

Understanding The Capital Advantage®

© Capital Group. All rights reserved.

Figures are past results and are not predictive of results in future periods.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other

entity, so they may lose value.

Enhancing Results by

Changing your Manager

Selection Lens®

© 2018 Capital Group. All rights reserved. .

MFCPPO-040-0418 8254 s68368

Myths in the Active / Passive Debate

Low cost + high manager ownership

Strength in down markets

Understanding how we got here

© Capital Group. All rights reserved..

The Capital Advantage: Five years of research

.

2




Overall, our equity-focused American Funds have delivered superior lifetime returns

Remarkable lifetime results

Equity-Focused American Funds vs. Relevant Benchmark Indexes.

Returns are average annual total returns for benchmark indexes and average annual excess total return for funds at net asset value from fund inception through 12/31/17. For further information on the methodology behind this exhibit, including each

fund's comparable index, please see the Asset-Weighted Methodology and Remarkable Results exhibit notes.

10.92% 11.36% 10.85% 10.10%8.55%

11.10%10.05% 10.21%

11.76% 11.15%8.67%

7.21%9.27%

7.43%4.94% 5.28% 5.90% 8.44%

1.27%0.32%

1.08%1.48% 3.79%

2.58%

1.03%0.55%

0.86%0.33%

2.34%

2.13%

0.62%

3.39%

3.44% 2.52% 0.88%

-3.45%

ICA

1/1/34

AMF

2/21/50

WMIF

7/31/52

AMCAP

5/1/67

NPF

3/13/73

GFA

12/1/73

IFA

12/1/73

AMBAL

7/26/75

FI

8/1/78

NEF

12/1/83

EUPAC

4/16/84

CIB

7/30/87

SCWF

4/30/90

WGI

3/26/93

NWF

6/17/99

IGI

10/1/08

GBAL

2/1/11

DWGI

2/3/14

Index return Excess return

1.48%

Figures shown are past results for Class A shares and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share

prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Results shown are at net asset value with all distributions

reinvested. If a sales charge (maximum 5.75%) had been deducted, the results would have been lower. For current information and month-end results, visit americanfunds.com.

.


Five equity-focused American Funds have delivered greater wealth

Separating skill from luck

Initial gross investment was $10,000, with $2,000 invested within each of the five funds and was rebalanced monthly. The net amount invested after sales charges was $9,425 across all American Funds, or $1,885 each. The maximum initial sales

chargewas 8.50% prior to July 1, 1988. All distributions were reinvested. The Vanguard fund has no up-front sales charge and is available in another share class with a lower expense ratio. This share class was not available for investment at the

inception of the fund. The American Funds are now also available in less expensive share classes that do not feature a sales charge.

Source: Capital Group, using data obtained from Morningstar. August 31, 1976 through December 31, 2017.

Figures shown are past results for Class

A shares for American Funds (Investor

shares for Vanguard 500 Index Fund)

and are not predictive of results in future

periods. Current and future results may

be lower or higher than those shown.

Share prices and returns will vary, so

investors may lose money. Investing for

short periods makes losses more likely.

Unless otherwise indicated, American

Funds returns are shown at maximum

offering price (MOP) and reflect

deduction of the 5.75% maximum sales

charge at the beginning of the period

shown. Current information and month-

end results for the Vanguard fund can be

found at vanguard.com. For current

information and month-end results for

the American Funds, visit

americanfunds.com.

$2,262,486

The Growth Fund

of America

$1,708,374

AMCAP Fund

$1,058,822 Washington

Mutual Investors Fund

$1,018,731 Investment

Company

of America

$955,842

American Mutual Fund

$780,261

Vanguard 500 Index Fund

1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017

.

3



Our former chairman,

Jim Fullerton, stated it best

almost 40 years ago

There are three crucial questions to ask when selecting a manager

© Capital Group. All rights reserved. .

What are the manager’s long-term

results?

What are the factors that

contributed to those results?

How likely are those factors to

continue into the future?

.© Capital Group. All rights reserved.

4




Look to Raise Your Success Rate

A Group of Select Funds Have Delivered Low Costs and Superior Returns

Source: Capital Group, based on Morningstar data. Data show the percentage of 10-year rolling periods in which an equally weighted portfolio of funds within each category outpaced

indexes. Based on rolling monthly periods from January 1996 to December 2015. U.S. funds are those in the Morningstar Large Value, Large Blend and Large Growth categories. U.S. index

is S&P 500. International funds are those in the Morningstar Foreign Large Value, Foreign Large Blend and Foreign Large Growth categories. International index is MSCI ACWI ex USA. The

indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. Unless otherwise indicated, all distributions were reinvested.

U.S. LARGE CAP FOREIGN LARGE CAP

33%Low

Expense

Ratio

53%High

Manager

Ownership

82%Best of Both

Morningstar

Universe

12%

Morningstar

Universe

24%

45%Low

Expense

Ratio

66%High

Manager

Ownership

95%Best of Both

Characteristics that matter in manager selection

Predictive

Instead of

past results

Stationary Robust Intuitive

Over reasonable

sample periods

Asset classes,

time periods,

market environments

Hypothesis test vs.

data mining


5



Key factors driving our results

Private Ownership Structure

Higher Fund Survivorship

Low Expense Discipline

Skin in the Game

Longer Investment Orientation

Stewardship

Holdings Turnover

Multiple-Manager System

Downside Protection

Disciplined Flexibility

Strategic Use of Cash

The Capital System



Privately owned fund families outpaced their publicly owned peers

Private ownership structure

Source: Capital Group calculations based on Bloomberg data on firm ownership as of 2016 and Morningstar monthly return data (1997-2016, the latest complete set of data available at the time of publication). Returns and expenses calculated analyzing

the full suite of investment vehicles available across the fund families delineated within this group of dedicated asset managers. This includes only those vehicles owned by fund families that do not offer other products and services outside of asset

management, which would include banks or insurance companies, among others. Please see the Asset-Weighted Methodology and Private Ownership notes in the Methodology for more detail on this calculation.

47 bps

–13 bps

Private vs. public asset managers

Median expense advantage

Median return advantage

.

6




Higher survivorship has been associated with better results

Across 81 Fund Families With at Least $10 Billion in Assets and at Least 20 Years of Return History

Source: Capital Group calculations based on monthly Morningstar data (1990-2016, the latest complete set of data available at the time of publication). Please see the Asset-Weighted Methodology and Higher Survivorship exhibit notes for more detailed

methodology on how this exhibit was calculated.

Of fund families with

positive excess return,

70% had

higher survivorship.

Of fund families with

negative excess return,

75% had

lower survivorship.

Lower survivorship (lower 3 quartiles) Higher survivorship (top quartile)American Funds is in the

90th percentile

–3

–2

–1

0

1

2

3

4

5

Annualized composite fund family equity return relative to prospectus benchmarks of underlying funds (percentage points per year)

.


1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Our funds have consistently featured lower expense ratios

Low expense discipline

Source: Capital Group calculations based on Morningstar data, total net assets and fees by share class (1997-2016, the latest complete set of data available at the time of publication). Please see the Asset-Weighted Methodology and Low Expense

Discipline notes at the back for more information on how this was calculated.

16

28

84

111

106

68

82

69

Active Peers (ex-AF)

Equity-Focused American Funds (AF)

Passive Peers

American Funds F-3 / R-6

41

.

7




Higher portfolio manager ownership has been associated with better results (by quartile)

Skin in the game

Source: Morningstar monthly average 5-year rolling returns and portfolio manager fund ownership data (1997-2016, the latest complete set ofdata available at the time of publication). Please see the Asset-Weighted Methodology note at the back for

more detail on this calculation.

1 (Highest) 2 3 4 (Lowest)

Average annual total return

Large-Cap Domestic Large-Cap Foreign

5.20%

5.53%

4.99%5.05%

3.95%

4.60%

4.13%

4.81%

.


Funds with longer manager evaluation periods have outpaced those with shorter periods

Longer investment orientation: Manager evaluation & tenure

* Ma, Linlin, Yuehua Tang, and Juan-Pedro Gomez 2016. Portfolio Manager Compensation in the U.S. Mutual Fund Industry. Journal of Finance.

Managers with explicit results-

based compensation exhibit

superior subsequent fund

performance, especially over a

longer time period.

Capital Group has one of

the industry’s longest

investment results

evaluation periods – one,

three, five and eight years.

More importantly, these

returns increased by more

than 30 bps for every 1.2 year

increase in the evaluation

period.*

.

8




Our turnover has remained below industry averages for 40 years

Holdings turnover

Source: Capital Group and Morningstar data (1976-2016, the latest complete set of data available at the time of publication). Please see the Holdings Turnover exhibit note for the list of funds included in this analysis and more detailed methodology on

how this exhibit was calculated.

Active Peers

Equity-Focused American Funds

51.59%

59.80%

21.90%

28.00%

99.46%

38.08%

1976 1986 1996 2006 2016

.


Funds with three or more managers have produced better results

Multiple managers vs. individuals

10-Year Average Relative Rolling Large-Cap Domestic Fund Excess Returns Relative to Total Peer Averages (bps per year)

Source: Capital Group calculations based on monthly Morningstar data (1997-2016, the latest complete set of data available at the time of publication). Please see the Asset-Weighted Methodology and Multiple Managers vs. Individuals exhibit notes for

more detailed methodology on how this exhibit was calculated.

Excess return vs. average LCD fund

8 bps

–7 bps

15 bps

1 Manager 3+ Manager

2 Manager

.

9




How Capital Group combines managers has made a difference

Our multiple-manager system

Using our multiple-manager system, Capital Group’s equity-focused American Funds have generally experienced better results than those of sampled combinations of single managers in hypothetical funds.

Source: Capital Group calculations based on Capital Group and Morningstar data, 10-year rolling returns (1997-2016, the latest complete set of data available at the time of publication). Hypothetical results are for illustrative purposes only and in no way

represent the actual results of a specific investment. Please see the Asset-Weighted Methodology and the Multiple-Manager System notes for more detailed methodology on how this exhibit was calculated.

Figures shown are past results for

Class A shares and are not

predictive of results in future

periods. Current and future results

may be lower or higher than those

shown. Share prices and returns

will vary, so investors may lose

money. Investing for short periods

makes losses more likely. Results

shown are at net asset value with

all distributions reinvested. If a

sales charge (maximum 5.75%)

had been deducted, the results

would have been lower. For current

information and month-end results,

visit americanfunds.com.

0.9

0.95

1

1.05

1.1

1.15

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

4TH Quartile

3rd Quartile

2nd Quartile

1st Quartile

The Growth Fund

of America

.

10-Year Rolling Returns

–10

0

15%

5

–5

10


Even the “worst” fund outcomes have improved over time

Downside protection

Average worst 5% of annualized returns improved as holding periods lengthened from one year to five and 10 years.

Source: Morningstar and Capital Group monthly data and calculations (1997-2016, the latest complete set of data available at the time of publication). Please see the Asset-Weighted Methodology and Downside Protection exhibit notes for more detailed


Domestic equity

Rolling 12-months Rolling 60-months Rolling 120-months

–33.5%–31.6%

–3.8%–1.8% –2.6%

0.7%

S&P 500 American

Funds

U.S.

.

10




Even the “worst” fund outcomes have improved over time

Downside protection

Average worst 5% of annualized returns improved as holding periods lengthened from one year to five and 10 years.

Source: Morningstar and Capital Group monthly data and calculations (1997-2016, the latest complete set of data available at the time of publication). Please see the Asset-Weighted Methodology and Downside Protection exhibit notes for more detailed


Rolling 12-months Rolling 60-months Rolling 120-months

Foreign equity

–40.2%

–35.8%

–5.2%

–2.3%

0.9%2.9%

MSCI ACWI ex

USA

American

Funds

Foreign

.


Lower downside capture helped contribute to superior results

Downside protection

“Results Difference due to Downside Capture” is the excess return of funds over their peers in down markets and “Results Difference due to Upside Capture” is the excess return of funds over their peers in up markets. The return difference of each

measurement is the excess return achieved by each of the U.S. equity-focused American Funds compared to the average returns of the asset-weighted active and passive peer groups. "Expenses and Other Adjustments" include the other effects that,

together with downside capture and upside capture, sum to the total return difference.

Source: Capital Group calculations based on monthly Morningstar data (1997-2016, the latest complete set of data available at the time of publication) for all active and index open-ended mutual fund and exchange-traded share classes. Please see the

Asset-Weighted Methodology and Downside Protection - Capture Ratio exhibit notes for more detailed methodology on how this exhibit was calculated.

Versus active peers Versus passive peers

–62 bps

178 bps

–103 bps

278 bps

Results difference due to

downside capture

Net = 116 bps

Net = 175 bps

–46 bps

33 bps

Results difference due to

upside capture

Expenses and other

adjustments

.

11




Stable. Robust.

Passive peers are all the funds that Morningstar categorizes as index or smart-beta funds. Active peers are all the funds that Morningstar does not categorize as index or smart-beta funds; fund of funds are not included in this sample.

Source: Capital Group and Morningstar, 20-year annualized excess returns and volatility (1998-2017). Volatility calculated using annualized standard deviation of returns. Please see the Asset-Weighted Methodology note for more detailed methodology

on how this exhibit was calculated.

American Funds Return Advantage American Funds Volatility Advantage

1.17%

over

active peers

–0.99%

–1.37%

1.26%

over

passive peers

.

Don’t settle for average

Strive to double your

batting average

Seek excess return and

lower volatility


Implications for your practice

.

12




Results as of December 31, 2017

American Funds investment results

Figures shown are past results for Class A

shares and are not predictive of results in

future periods. Current and future results

may be lower or higher than those shown.




Fund results reflect deduction of

maximum sales charge (5.75% for equity

funds). For current information and

month-end results, visit

americanfunds.com.

Symbol 1 Year 5 Years 10 Years

Expense

Ratio (%)

Growth Funds

AMCAP Fund® (AMCAP) AMCPX 15.04 14.17 8.33 0.69

EuroPacific Growth Fund® (EUPAC) AEPGX 23.21 7.55 2.98 0.85

The Growth Fund of America® (GFA) AGTHX 18.90 14.71 7.68 0.64

The New Economy Fund® (NEF) ANEFX 26.66 15.04 8.47 0.82

New Perspective Fund® (NPF) ANWPX 21.47 11.27 6.25 0.75

New World Fund® (NWF) NEWFX 24.93 5.27 2.45 1.04

SMALLCAP World Fund® (SCWF) SMCWX 19.53 11.29 5.63 1.07

.




* The fund’s lifetime is less than the full period. American Funds Developing World Growth and Income Fund began operations on February 3, 2014; and International Growth and Income Fund began operations on October 1, 2008.












americanfunds.com.


Expense

Ratio (%)

Growth-and-Income Funds

American Funds Developing World Growth and

Income FundSM (DWGI)DWGAX 20.35 3.41* - 1.33

American Mutual Fund® (AMF) AMRMX 10.90 12.12 7.46 0.60

Capital World Growth and Income Fund® (WGI) CWGIX 17.52 9.71 4.39 0.80

Fundamental Investors® (FI) ANCFX 16.27 14.15 7.41 0.62

International Growth and Income FundSM (IGI) IGAAX 18.82 4.95 7.11* 0.93

The Investment Company of America® (ICA) AIVSX 12.85 13.60 7.05 0.60

Washington Mutual Investors FundSM (WMIF) AWSHX 13.28 13.48 7.41 0.58

.

13






* The fund’s lifetime is less than the full period. American Funds Global Balanced Fund began operations on February 1, 2011.












americanfunds.com.


Expense

Ratio (%)

Equity-Income Funds

Capital Income Builder® (CIB) CAIBX 7.67 9.77 3.74 0.59

The Income Fund of America® (IFA) AMECX 6.86 8.34 5.75 0.56

Balanced Funds

American Balanced Fund® (AMBAL) ABALX 8.85 9.77 6.74 0.60

American Funds Global Balanced FundSM (GBAL) GBLAX 7.42 6.04 5.87* 0.86

.


Important information

Investors should carefully consider the investment objectives, risks, charges

and expenses of the American Funds. This and other important information is

contained in each fund’s prospectus and summary prospectus, which can be

obtained from a financial professional and should be read carefully before

investing. Securities offered through American Funds Distributors, Inc.

.

14




Investment results assume all distributions are reinvested and reflect applicable fees and

expenses. Expense ratios are as of each fund’s prospectus available at the time of publication.

When applicable, investment results reflect fee waivers and/or expense reimbursements, without

which the results would have been lower. Please see americanfunds.com for more information.

Investing outside the United States involves risks, such as currency fluctuations, periods of

illiquidity and price volatility, as more fully described in the prospectus. These risks may be

heightened in connection with investments in developing countries. Small-company stocks entail

additional risks, and they can fluctuate in price more than larger company stocks. The return of

principal for funds with significant underlying bond holdings is not guaranteed. Fund shares are

subject to the same interest rate, inflation and credit risks associated with the underlying bond

holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income

and principal than higher rated bonds.

If used after March 31, 2018, this presentation must be accompanied by a current American Funds

quarterly statistical update.

Content contained herein is not intended to serve as impartial investment or fiduciary advice. The

content has been developed by Capital Group, which receives fees for managing, distributing

and/or servicing its investments.


.


Market indexes referenced in this material are defined as follows:

Bloomberg Barclays Global Aggregate Index represents the global investment-grade fixed income

markets. This index is unmanaged, and its results include reinvested distributions but do not reflect

the effect of sales charges, commissions, account fees, expenses or U.S. federal income taxes.

Bloomberg Barclays U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond

market. This index is unmanaged, and its results include reinvested dividends and/or distributions

but do not reflect the effect of sales charges, commissions, account fees, expenses or U.S. federal

income taxes.

MSCI All Country World ex USA Index is a free float-adjusted market capitalization-weighted index

that is designed to measure results of more than 40 developed and emerging equity markets,

excluding the United States. Results reflect dividends gross of withholding taxes through December

31, 2000, and dividends net of withholding taxes thereafter.


.

15




S&P 500 Index is a market capitalization-weighted index based on the results of approximately 500

widely held common stocks.

The market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest

directly in an index. There have been periods when funds have lagged the index. Past results are

not predictive of results in future periods.

The S&P indexes are products of S&P Dow Jones Indices LLC and/or its affiliates and have been

licensed for use by Capital Group. Copyright © 2018 S&P Dow Jones Indices LLC, a division of S&P

Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part

are prohibited without written permission of S&P Dow Jones Indices LLC.

© 2018 Citigroup Index LLC. All rights reserved.


.


© 2018 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to

Morningstar and/or its content providers; (2) may not be copied or distributed; (3) does not

constitute investment advice offered by Morningstar; and (4) is not warranted to be accurate,

complete or timely. Neither Morningstar nor its content providers are responsible for any damages

or losses arising from this information. Past performance is no guarantee of future results.

Bloomberg® is a trademark of Bloomberg Finance L.P. (collectively with its affiliates, “Bloomberg”).

Barclays® is a trademark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used

under license. Neither Bloomberg nor Barclays approves or endorses this material, guarantees the

accuracy or completeness of any information herein and, to the maximum extent allowed by law,

neither shall have any liability or responsibility for injury or damages arising in connection

therewith.

MSCI has not approved, reviewed or produced this report, makes no express or implied warranties

or representations and is not liable whatsoever for any data in the report. You may not redistribute

the MSCI data or use it as a basis for other indices or investment products.


.

16




Asset-weighted methodology

Wherever possible, The Capital Advantage research findings are based on asset weighting rather

than equal weighting. Exceptions are noted and explained where applicable. Asset-weighted

comparisons used in this piece use the following process: for each equity-focused fund, we gathered

their respective net returns and asset sizes for all the share classes available for each period. At this

level, the returns are then share class-weighted, which means the returns are asset-weighted

according to the share of assets associated with each share class within each fund. Each fund is

then delineated by whether it is active or passive, then grouped into its respective Morningstar

category. Additionally, each fund’s survivorship rate is accounted for, i.e., once created, we

accounted for whether the funds have merged or closed during the measured period. In those cases

where a fund is merged or closed, its asset weighting is adjusted to zero and its assets are

distributed to all other funds in the category. For newly created funds, the weight of that fund is zero

until the period in which it has reported assets, whereupon we use the standard asset weighting to

weight the returns based on asset size. This methodology is used to more effectively portray the

likely experience of market participants in the analyzed period versus an equal-weighting

methodology, which is more appropriate when analyzing the performance of a specific fund over

time, regardless of the size of its assets. Additionally, asset-weighting is often more appropriate

when analyzing the results of an investment in an entire fund category.

Methodology

.


For example, the return of a $10 billion fund would count for 10 times as much of the return of a

$1 billion fund. From there, as a fund’s assets grow or shrink relative to other funds, its effect on

the category return would increase or decrease as appropriate.

Methodology

.

17




Separating skill from luck

Source for industry average expense ratios is Lipper, based on comparable categories for front-end

load funds (except for the Vanguard fund, which is no load, not front-end load), excluding funds of

funds, as of each fund’s most recent fiscal year-end available as of December 31, 2017. The Lipper

categories for the funds are: AMCAP Fund (Growth); The Growth Fund of America (Large-Cap

Growth); The Investment Company of America, Washington Mutual Investors Fund and American

Mutual Fund (Growth & Income); and Vanguard 500 Index Fund (S&P 500 Index Objective Funds).

These numbers were calculated by the Capital Group based on underlying Morningstar data.

Methodology

.


Remarkable results

Returns are average annual total returns for benchmark indexes and average annual excess total

return for funds at net asset value from fund inception through 12/31/17. The 18 American Funds

equity-focused funds used in our analysis and the relevant index/ index blends with which they

were compared are as follows: AMCAP Fund, The Growth Fund of America, The New Economy Fund,

American Mutual Fund, Fundamental Investors, The Investment Company of America and

Washington Mutual Investors Fund (Standard & Poor's 500 Index); American Funds Developing

World Growth and Income Fund (MSCI Emerging Markets Index); EuroPacific Growth Fund (MSCI

EAFE Index through 03/31/2007 and the MSCI All Country World ex USA Index, the fund's current

primary benchmark, thereafter); International Growth and Income Fund (MSCI World ex USA Index

through 06/30/2011 and the MSCI All Country World ex USA Index, the fund's current primary

benchmark, thereafter); New Perspective Fund (MSCI World Index through 09/30/2011 and the

MSCI All Country World Index, the fund's current primary benchmark, thereafter); Capital World

Growth and Income Fund (MSCI World Index through 11/30/2011 and the MSCI All Country World

Index, the fund's current primary benchmark, thereafter); SMALLCAP World Fund (S&P Global <$3

Billion Index through 09/30/2009 and the MSCI All Country World Small Cap Index, the fund's

current primary benchmark, thereafter); Capital Income Builder (70% MSCI All Country World and

30% Bloomberg Barclays U.S. Aggregate indexes.

Methodology

.

18




From 7/30/1987, through 12/31/1987, the MSCI World Index was used); American Funds Global

Balanced Fund (60% MSCI All Country World and 40% Bloomberg Barclays Global Aggregate

indexes); American Balanced Fund (60% Standard & Poor's 500 and 40% Bloomberg Barclays U.S.

Aggregate indexes); New World Fund (MSCI All Country World Index); and The Income Fund of

America (65%/35% S&P 500 Index/Bloomberg Barclays U.S. Aggregate Index. From 12/01/1973,

through 12/31/1975, the Bloomberg Barclays Government/Credit Bond Index was used).

Private ownership

As of 2017, we classified all large fund families as those with at least $10 billion in assets as well

as those with at least 10 years of return history as of 2006, which were then categorized by

whether they were publicly (i.e., owned by public shareholders) or privately held. The results were

then categorized by whether the fund families' are managed by dedicated asset management

firms, or they were part of an organization with other products or services, including banks,

insurance companies, and institutional financial services. Then we compared the returns of all

investment vehicles managed by either the privately owned or publicly owned dedicated asset

managers.

Methodology

.


Higher survivorship

Family fund survivorship is calculated based on the ratio of live funds to total funds (which includes

live, liquidated and merged). Fund family excess returns (based on the excess return of equity

funds over their respective stated primary benchmark) are time-weighted (funds with more history

are weighted higher) and are generated by all equity funds offered by the family at any point in

time. Exhibit 4 focuses on peer fund families that manage over $10 billion in AUM and have

generated at least 20 years of returns, as of 2017. To create the fund family composite, we weight

these funds according to the amount of assets they have at a given time. These numbers are

calculated over the full 20 year period and then annualized.

Low expense discipline

This exhibit was calculated in accordance with the Asset-Weighted Methodology; however, in those

cases where Morningstar categories did not contain passive peers, comparisons to the American

Funds were still made for the purposes of this exhibit only. The data analyzed showed that those

missing passive peers were frequently the most expensive categories, thus, when not available,

likely skewed results in favor of the remaining passive peer categories, making them even less

expensive than any in the active peer category or American Funds.

Methodology

.

19




Holdings turnover

Turnover for the equity-focused American Funds represented by the equal-weighted average of those

American Funds with at least 40 years of return history. At any one point in time, active peers are

represented by the equal-weighted average of all existing funds in their respective Morningstar peer

categories: American Mutual Fund (U.S. Fund Large Growth); Washington Mutual Investors Fund

(U.S. Fund Large Value); The Investment Company of America (U.S. Fund Large Blend); Fundamental

Investors (U.S. Fund Large Blend); The New Economy Fund (U.S. Fund Large Growth); AMCAP Fund

(U.S. Fund Large Growth); The Growth Fund of America (U.S. Fund Large Growth); International

Growth and Income Fund (U.S. Fund Foreign Large Blend); EuroPacific Growth Fund (U.S. Fund

Foreign Large Growth); New Perspective Fund (U.S. Fund World Large Stock); Capital World Growth

and Income Fund (U.S. Fund World Large Stock); SMALLCAP World Fund (U.S. Fund World Small/Mid

Stock); American Funds Developing World Growth and Income FundSM (U.S. Fund Diversified

Emerging Markets); New World Fund (U.S. Fund Diversified Emerging Markets). Analysis not asset-

weighted due to unavailability of data.

Methodology

.


Multiple managers vs. individuals

For these calculations we grouped funds by the number of managers (where number = 1, 2, 3+ for

each fund) each month. The results for funds with more than three managers were similar to those

with three managers, but the number of funds in those groupings were too small to treat as a

separate category. Within each group, fund returns are asset weighted to build a monthly time

series for the full period. Then, to compare the three groups of returns, we calculated the monthly

10-year rolling returns of each group versus both the S&P 500 and the equal-weighted average of

all managers within the Morningstar Large Cap Domestic universe.

Methodology

.

20




Multiple-manager system

Simulated fund outcome distributions are the result of combining the equal-weighted results of a

monthly sample of single-manager funds in the appropriate Morningstar category, where the

number of funds equals the number of managers in our corresponding equity-focused fund at that

time. Results for single-manager funds are based on the oldest share class available, as designated

by Morningstar. All 12 of Capital Group’s equity-focused American Funds, not including our two

balanced funds, with at least 20-year return histories were included in a full analysis for this exhibit.

Analysis does not include balanced funds — American Balanced Fund, American Funds Global

Balanced Fund and Capital Income Builder — as well as those with fewer than 20 years of returns —

International Growth and Income Fund, American Funds Developing World Growth and Income Fund

or New World Fund. American Funds results are based on asset-weighted share classes. The Growth

Fund of America, The New Economy Fund, Capital World Growth and Income Fund and SMALLCAP

World Fund were selected for the exhibit because they are representative of the range of results

from the full analysis. All returns are 10-year returns. Figures for each year shown on the horizontal

axis are the annualized return for the past 10 years. In all, there are 20 years of 10-year returns.

Methodology

.


Downside protection

Capital Group calculations for nine equity-focused American Funds, including seven domestic

equity-focused funds benchmarked to the S&P 500 — The Growth Fund of America, The Investment

Company of America, The New Economy Fund, AMCAP Fund, Washington Mutual Investors Fund,

and American Mutual Fund — and two foreign equity-focused American Funds benchmarked to the

MSCI ACWI ex USA — EuroPacific Growth Fund and International Growth and Income Fund. We

calculated the “worst” fund outcomes using the average of worst 5% of monthly returns, for each

index and American Fund composite over rolling 12-, 60- and 120-month periods using asset-

weighted and share-class weighted fund composites.

Methodology

.

21




Downside protection – Capture ratio

Capture ratio reflects the annualized product of fund versus index returns for all months in which the

index had a positive return (upside capture) or negative return (downside capture). “Results

Difference due to Downside Capture” is the excess return of funds over their peers in down markets

and “Results Difference due to Upside Capture” is the excess return of funds over their peers in up

markets. The return difference of each measurement is the excess return achieved by each of the

U.S. equity-focused American Funds compared to the average returns of the asset-weighted active

and passive peer groups. Downside capture and upside capture versus the appropriate market

benchmark are both calculated annually for every share class (alive and dead). A share class must

have at least 12 months of returns to generate a downside or upside capture result. Downside and

upside capture for each category is weighted by each fund's average net assets by year.

Methodology

.

© 2018 The Capital Group Companies, Inc.

Figures are past results and are

not predictive of results in future

periods.

Investments are not FDIC-

insured, nor are they deposits of

or guaranteed by a bank or any

other entity, so they may lose

value.

For financial professionals only. Not for use with the public.

Figures are past results and are not predictive of results in future periods.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other

entity, so they may lose value.

Enhancing Results by

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