Is American Funds New Economy F2 (NEFFX) a good mutual fund choice right now?

MFund seekers should not consider taking a look at the US New Economy F2 Fund (NEFFX) at this time. NEFFX has a Zacks Mutual Fund Rank of 4 (sell), which is based on nine predictor factors such as size, cost and past performance.

Fund/manager history

NEFFX is part of the American Funds family of funds, a company based in Los Angeles, California. American Funds New Economy F2 debuted in August 2008, and since then NEFFX has accumulated approximately $3.02 billion in assets, according to the most recent date available. The current fund manager is a team of investment professionals.

Performance

Investors are naturally looking for high performance funds. This particular fund has generated a 5-year annualized total return of 9.69% and is in the top third of its peers in the category. But if you’re looking for a shorter time frame, it’s also worth looking at its 3-year annualized total return of 8.94%, which puts it in the middle third over that time frame.

When looking at a fund’s performance, it’s also important to note the standard deviation of returns. The lower the standard deviation, the less volatility the fund experiences. Over the past three years, the standard deviation of NEFFX is 19.23%, compared to a category average of 15.18%. Looking back over the last 5 years, the standard deviation of the fund 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 keep in mind beta, an important way to measure a mutual fund‘s risk relative 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. Since alpha represents the performance of a portfolio on a risk-adjusted basis relative to a benchmark, which is the S&P 500 in this case, it is also worth paying attention to this measure. The fund has produced a negative alpha of -2.79 over the past 5 years, which shows that the managers of this portfolio have difficulty selecting stocks that generate returns above the benchmark.

Assets

Exploring the stock 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 whether there are any inherent biases in their approach. For this particular fund, the focus is primarily on stocks that are traded in the United States.

Currently, 98.16% of this mutual fund’s holdings are in stocks, which have an average market capitalization of $346.51 billion. The turnover rate is 28%, which means that this fund trades less than the average comparable fund.

Expenses

Costs are increasingly important for investing in mutual funds, especially as competition intensifies in this market. And all other things being equal, a lower-cost product will outperform its otherwise identical counterpart, so it’s essential for investors to take a closer look at these metrics. In terms of fees, NEFFX is a zero-fee 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 each subsequent investment must be $50.

Conclusion

Overall, American Funds New Economy F2 (NEFFX) has a low Zacks Mutual Fund ranking, and in conjunction with its relatively strong performance, medium downside risk, and lower fees, American Funds New Economy F2 (NEFFX) appears to be a somewhat poor choice for investors at the moment.

For more information on this product or to compare it to other mutual funds in the Mutual Fund Stock Report, go to www.zacks.com/funds/mutual-funds for more information. information. Zacks provides a full suite of tools to help you analyze your portfolio – 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.

Dolores W. Simon