Fund Analysis: CIF US Growth and Income Fund

CIF US Growth and Income Fund receives an Elite Qualitative Rating

Morningstar Analysts 14 January, 2011 | 0:00
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Report Release Date:
15 Oct 2010

Analyst: Karin Anderson



Morningstar Opinion


This is a sound choice for US stock exposure.


This fund employs a multi-manager process common to all Capital International funds, with Don O’Neal, Ross Sappenfield, and Eric Richter each managing separate sleeves of the fund. For many years, O’Neal and Sappenfield have run sleeves of American Funds Investment Company of America, this fund’s successful US counterpart and one of the oldest US equity mutual funds in existence. The multi-manager approach makes the fund rather unique, because it allows each manager to go with his highest-conviction picks while the combination of the sleeves mutes the volatility of the individual bets.


That said, it’s not as if the portfolio managers use wildly different strategies. They all focus on firms that pay a healthy dividend as well as those that should be able to increase that payout over time. It’s also worth noting that the managers can delve into growthier stocks, so the fund has stayed squarely in the large-blend part of the Morningstar Style Box over the years.


To that end, the managers have a large team of analysts at their disposal, and after considering typical valuation metrics such as price/earnings, price/book, and returns on equity, they pick stocks based on a three- to five-year investment horizon. Their patience is reflected in the fund’s consistently low turnover, which has remained at 30% or less and equates to roughly one third as much trading as the typical peer. This patience was evident from 2003 through 2006, when the managers generally stuck with mega-caps that they found undervalued even though this caused the fund to lag its more intrepid peers.


The loose dividend mandate creates a portfolio that should typically outperform during prolonged downturns, but it’s not necessarily going to be a laggard during rallies. For instance, the fund kept a good pace during 2009’s market surge thanks to a technology overweight compared with the S&P 500 Index. (These stocks led the way throughout much of the year.) So, from the 9 March 2009 market bottom through the most recent peak on 23 April 2010, the fund’s 81% gain outpaced the index and category mean by 2 and 6 percentage points, respectively.


Since O’Neal took the reins in Oct. 2002 through 11 Oct. 2010, its 5% annualized gain has been roughly on par with the benchmark and category norm. However, there’s good reason to believe that the fund can outperform over the long haul since its U.S. counterpart has amassed an excellent record spanning several market cycles with an attractive risk/reward profile.


Given the managers’ multiyear investment horizon, this fund is best suited for like-minded investors. Overall, it’s an excellent choice for pure US large-cap exposure thanks to its solid management team, sound process, and the firm’s shareholder-friendly reputation. It earns our highest qualitative rating, Elite.



*The above returns are in USD terms.


To learn more about the fund, please click here.

To read the summary report, please click here.

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