American Mutual Funds - Bond Funds Popular

The bull runs of the stock market in years before 2008 had people rushing to buy equities or stocks of companies. The global financial crisis of 2008 saw investors losing their confidence in the stock market. Once seen as an attractive avenue of increasing their savings, the plunge in stock prices following the downturn has meant that people don't feel equities are a safe investment choice. As a result, people have been steadily withdrawing their money from stocks and putting it in the safety of government bonds. American mutual funds too are affected by this trend. While previously, the mutual funds concentrating on large caps and growth funds were considered to be safe bets and were popular, now investments are flowing out of these growth funds into money market and bond funds. American mutual funds foreign bond fund is also becoming very popular among investors as they seek to diversify their bond assets.

According to Morningstar, a mutual funds market research organisation, investments in funds focussed on stocks reduced by more than $40 billion dollars during the year 2010 till August. Growth mutual funds focussing on large cap stock investments saw huge withdrawals by customers. In contrast, the demand for American mutual funds bond funds has seen a huge increase. For the year 2010, till August end, taxable bond funds attracted more than US $168.4 billion. Types of American bond funds, which are seeing increasing interest, are intermediate bond, multi-sector bond funds and global bond funds. Among foreign bond funds, specialised mutual funds in emerging market bonds are also seeing increasing investment.

This article takes a look at the one of the largest American mutual funds company - the American Funds that has actively managed stock mutual funds and how it has been affected by the trend of demand for bonds. The various bonds funds offered by American Funds including foreign bond funds are also explored.

American Funds Mutual Funds - Overview of its Bond Funds

American mutual funds such as American Funds mutual funds, which are one of the top three largest mutual funds in the United States (US) with net assets totalling $857 billion, saw withdrawals of investments from its actively managed funds to a tune of $28.9 million dollars this year 2010. The current trend is towards passively managed funds such as indexed and bond funds. American Funds, owned by Capital Group, was hugely popular in the mutual fund market with its Growth fund of America (AGTHX) ranking among the largest growth funds. However, the emphasis of American Funds mutual funds on actively managed stock portfolios, with the help of professional fund managers, has proved to be the cause of its declining popularity in the current scenario. American Funds has 72% in equity-based holdings and only 19% in bonds.

In spite of the negative data on stock funds of American mutual funds, according to a study by Brightscope Inc in October 2010, two American Funds mutual funds were found to be the most used in 401(k) retirement savings plans. American Funds Growth Fund of America (AGTHX) and American Funds' EuroPacific Growth Fund (AEPGX) were two of the most popular American mutual funds investments in retirement savings. This study was based on financial data from 2007 -2009.

With a finger on the investor pulse, American Funds has decided to open two new municipal bond and mortgage funds and has applied to the US Securities and Exchange Commission (SEC) for permission. Although American Funds insists that this plan had been in place for long, it can help in attracting the investors to American Funds for its bond funds.

Some of the bond funds offered by American Funds are:

• Bond Fund of America (ABNDX) - The investment objective of this fund is to maintain the capital while providing high regular income. As of August 31, 2010, it had 77.8% of its portfolio invested in US bonds and 17.5 % in Non- US bonds. A majority of its holdings are in US Treasury bonds, mortgage and asset-backed securities and US corporate bonds. It typically invests in high rated bonds (A3 - A- rated bonds) and tries to restrict its holdings of lower rate bonds to 10%.
• American High-Income Trust (AHITX) - This bond fund is said to target high regular income along with capital appreciation. It concentrates on bonds which are high yielding, although being rated lower. Lower rated bonds are riskier than bonds which are rated higher for example AAA bonds. However, they may have greater returns. The AHITX invests primarily in US bonds (71.9%) and foreign corporate and government bonds (18.7%) (Data as of August 31, 2010). In US bonds, investment in corporate bonds predominates.

An American mutual fund such as American Funds also offers municipal bond fund and a foreign bond fund.

American Mutual Funds Foreign Bond Fund

American mutual fund foreign bond fund taps the demand for foreign bonds that has increased due to the need for diversified investments in bond markets as well as the quest for higher returns. Emerging market bonds are also being favoured more according to an article in the Wall Street Journal .

While American mutual funds specialising in bonds do have a small percentage of non-US bond holdings, some American mutual funds foreign bond fund concentrate predominantly on foreign bonds.

The American Funds Capital World Bond (CWBX) is among American mutual funds, which offer investment in foreign bonds. It has diversified investments in global bonds with holdings in Government of Japan bonds, Poland Government bonds and US Treasuries. Close to 49.5% of its holdings are in non US government bonds followed by around 14.4 % in foreign corporate bonds and 11% in Treasuries. It also has holdings in bonds of emerging markets.

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