Is American Funds SMALLCAP World A (SMCWX) a Strong Mutual Fund Pick Right Now?

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If investors are looking at the Global – Equity fund category, make sure to pass over American Funds SMALLCAP World A (SMCWX). SMCWX carries a Zacks Mutual Fund Rank of 4 (Sell), which is based on various forecasting factors like size, cost, and past performance.

Objective

Zacks categorizes SMCWX as Global – Equity, which is a segment packed with options. Global – Equity mutual funds invest in large markets like the U.S., Europe, and Japan, and operate with very few geographical limitations. They also provide an investment technique that leverages the diverse nature of the global economy in the hopes of providing a stable return.

History of Fund/Manager

SMCWX finds itself in the American Funds family, based out of Los Angeles, CA. The American Funds SMALLCAP World A made its debut in April of 1990 and SMCWX has managed to accumulate roughly $25.28 billion in assets, as of the most recently available information. The fund’s current manager is a team of investment professionals.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund has delivered a 5-year annualized total return of 6.27%, and is in the middle third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of -6.46%, which places it in the middle third during this time-frame.

It is important to note that the product’s returns may not reflect all its expenses. Any fees not reflected would lower the returns. Total returns do not reflect the fund’s [%] sale charge. If sales charges were included, total returns would have been lower.

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. Compared to the category average of 14.63%, the standard deviation of SMCWX over the past three years is 19.69%. Over the past 5 years, the standard deviation of the fund is 21.42% compared to the category average of 15.66%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

Investors should not forget about beta, an important way to measure a mutual fund’s risk compared to the market as a whole. SMCWX has a 5-year beta of 1.04, which means it is likely to be more volatile than the market average. Another factor to consider is alpha, as it reflects a portfolio’s performance on a risk-adjusted basis relative to a benchmark-in this case, the S&P 500. The fund has produced a negative alpha over the past 5 years of -6.11, which shows that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, SMCWX is a load fund. It has an expense ratio of 1.05% compared to the category average of 0.97%. Looking at the fund from a cost perspective, SMCWX is actually more expensive than its peers.

Investors need to be aware that with this product, the minimum initial investment is $250; each subsequent investment needs to be at least $50.

Fees charged by investment advisors have not been taken into considiration. Returns would be less if those were included.

Bottom Line

Overall, American Funds SMALLCAP World A ( SMCWX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, worse downside risk, and higher fees, this fund looks like a somewhat weak choice for investors right now.

Your research on the Global – Equity segment doesn’t have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well for additional information. If you want to check out our stock reports as well, make sure to go to Zacks.com to see all of the great tools we have to offer, including our time-tested Zacks Rank.

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