How to Screen | Capital Group

  • ACCOUNTS
  • INVESTMENTS
  • CLIENT SOLUTIONS
  • INSIGHTS
  • EVENTS
  • ABOUT US

The Capital Advantage

How to Screen

Look for funds that meet key criteria when building portfolios.

  • Two traits in combination can be helpful in identifying funds with a track record of outpacing indexes over long periods — low expense ratios and high manager ownership.1
  • Funds with lower expense ratios have tended to outpace the index more frequently than their peers.
  • Investment firms whose managers invest more of their own money in their funds have tended to outpace the index more frequently than their peers.

Characteristics of Core Funds That Added Value Two Screens Can Help Sharpen Your Search

Source: Capital Group, based on Morningstar® data.2

  • Funds with low expenses and high manager ownership can help investors over time.
  • We examined the funds in Morningstar’s U.S. and foreign large-cap categories over a 20-year period and ranked them into quartiles based on their level of expense ratios or firm-level manager ownership.
  • We found that the group of funds belonging to both quartiles — those that had the highest manager ownership and lowest expense ratios — meaningfully improved average outcomes for investors over the periods we analyzed. 

Look for Funds That Meet Two Key Criteria Large-Cap Equity Funds With Low Expense Ratios and High Manager Ownership

Web Chart Funds Low Expense

Source: Capital Group, based on Morningstar data.3

  • Two traits we studied — low expense ratios and high manager ownership — significantly improved success rates versus the index, and were associated with greater average risk-adjusted returns.
  • The portfolio of large-cap funds with those two traits outpaced indexes more frequently than other funds in the periods we analyzed. The portfolio also generated meaningfully greater alpha (a measure of risk-adjusted results).
  • Together, these screens significantly boosted success rates over the periods we studied. Because large-cap equity occupies such a large part of most portfolios, higher success rates can result in substantial gains.

Two Steps Raised the Success Rate

Success Rates in Large-Cap Equities (Net of Fees)

Web Chart 10 Year
Web Chart 5 Year

Source: Capital Group, based on Morningstar data.4

  • Another important trait is low downside capture, which refers to a fund’s ability to outpace indexes during market declines.
  • Funds that provide resilience during downturns and less volatility can be especially important in retirement, when investors are taking withdrawals.
  • Low expense ratios and high management ownership have been historically associated with a strong track record against indexes. We found that adding a third trait, downside capture, to the investment selection process enhanced results during withdrawal scenarios.

Look for Two Manager Traits in Core Portfolios Expense ratio and manager ownership are key

Source: Capital Group, based on Morningstar data.5

  • How much do these traits help during retirement? We examined the four Morningstar® category groupings shown in the chart to find out how often the group of funds identified by our screens in each category, on average, beat indexes in a withdrawal scenario over rolling 10-year periods.
  • We screened for downside capture, expense ratios and manager ownership. The group of funds that met the downside capture and expense ratio screens experienced higher success rates, as did the group of funds meeting both the downside capture and manager ownership screens.
  • Finally, the group of funds that met all three screens — downside capture, expense ratios and ownership — experienced even higher success rates.

The Group of Select Equity Funds, on Average, Outpaced Indexes More Often in a Withdrawal Scenario

U.S. Large Cap

chart-withdrawal-scenarios_422x196_01

Moderate Allocation

chart-withdrawal-scenarios_422x196_02

Foreign Large Cap

chart-withdrawal-scenarios_422x196_03

World Allocation

chart-withdrawal-scenarios_422x196_04

Source: Capital Group, based on Morningstar data.6

1Source: Capital Group, based on Morningstar data. Based on monthly returns from January 1997 to December 2017. 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.

2Source: Capital Group, based on Morningstar data. Based on monthly returns from January 1997 to December 2017. 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.

3Source: Capital Group, based on Morningstar data. Domestic funds are those in the Morningstar Large Value, Large Blend and Large Growth categories. International funds are those in the Morningstar Foreign Large Value, Foreign Large Blend and Foreign Large Growth categories. Size of quartiles varies because those funds in the Morningstar database that did not include an expense ratio or firm-level investment ownership were excluded from the analysis.

4Source: Capital Group, based on Morningstar data. Based on monthly returns from January 1997 to December 2017. 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.

5Source: Capital Group, based on Morningstar data. Based on monthly returns net of fees. Average annualized returns include withdrawals. See Appendix for methodology. U.S. funds are those in the Morningstar Open-End Large Value, Large Blend and Large Growth categories. International funds are those in the Morningstar Open-End Foreign Large Value, Foreign Large Blend and Foreign Large Growth categories. Moderate Allocation and World Allocation funds drawn from Morningstar categories of the same name.

6Source: Capital Group, based on Morningstar data. Based on monthly returns. Average annualized returns are at net asset value and include withdrawals. See Appendix for methodology. U.S. funds are those in the Morningstar Open-End Large Value, Large Blend and Large Growth categories. International funds are those in the Morningstar Open-End Foreign Large Value, Foreign Large Blend and Foreign Large Growth categories. Moderate Allocation and World Allocation funds drawn from Morningstar categories of the same name. Moderate Allocation index is 60% S&P 500 and 40% Bloomberg Barclays U.S. Aggregate indexes. World Allocation index is 60% MSCI All Country World Index and 40% Bloomberg Barclays Global Aggregate Index. U.S. index is S&P 500. Foreign index is MSCI All Country World ex USA. The indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing. 

The American Funds are distributed by American Funds Distributors, Inc.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.