Is American Funds New Economy F2 (NEFFX) a Strong Mutual Fund Pick Right Now?


Mutual Fund Equity Report fund seekers should not consider taking a look at American Funds New Economy F2 (NEFFX) at this time. NEFFX has a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.

History of Fund/Manager

NEFFX is a part of the American Funds family of funds, a company based out of Los Angeles, CA. American Funds New Economy F2 made its debut in August of 2008, and since then, NEFFX has accumulated about $3.02 billion in assets, per the most up-to-date date available. The fund’s current manager is a team of investment professionals.

Performance

Investors naturally seek funds with strong performance. This fund in particular has delivered a 5-year annualized total return of 9.69%, and it sits in the top third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 8.94%, which places it in the middle third during this time-frame.

When looking at a fund’s performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. Over the past three years, NEFFX’s standard deviation comes in at 19.23%, compared to the category average of 15.18%. Looking at the past 5 years, the fund’s standard deviation is 17.47% compared to the category average of 13.32%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

Investors should not forget about the beta, an important way to measure a mutual fund’s risk compared to the market as a whole. NEFFX has a 5-year beta of 0.98, which means it is likely to be as volatile as the market average. Because alpha represents a portfolio’s performance on a risk-adjusted basis relative to a benchmark, which is the S&P 500 in this case, one should pay attention to this metric as well. The fund has produced a negative alpha over the past 5 years of -2.79, which shows that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Holdings

Exploring the equity holdings of a mutual fund is also a valuable exercise. This can show us how the manager is applying their stated methodology, as well as if there are any inherent biases in their approach. For this particular fund, the focus is mostly on equities that are traded in the United States.

Right now, 98.16% of this mutual fund’s holdings are stocks, which have an average market capitalization of $346.51 billion. Turnover is 28%, which means this fund makes fewer trades than the average comparable fund.

Expenses

Costs are particularly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, NEFFX is a no load fund. It has an expense ratio of 0.51% compared to the category average of 1.10%. Looking at the fund from a cost perspective, NEFFX is actually cheaper than its peers.

Investors should also note that the minimum initial investment for the product is $250 and that each subsequent investment needs to be at $50.

Bottom Line

Overall, American Funds New Economy F2 (NEFFX) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, American Funds New Economy F2 (NEFFX) looks like a somewhat weak choice for investors right now.

For additional information on this product, or to compare it to other mutual funds in the Mutual Fund Equity Report, make sure to go to www.zacks.com/funds/mutual-funds for additional information. Zacks provides a full suite of tools to help you analyze your portfolio – both funds and stocks – in the most efficient way possible.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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