American Funds Washington Mutual Is a Strong Option for Risk-Averse Investors

Key Morningstar Metrics for American Funds Washington Mutual

• Morningstar Medalist Rating: Gold
• Process Pillar: Above Average
• People Pillar: High
• Parent Pillar: High

American Funds Washington Mutual’s seasoned crew plies a time-tested approach, earning High People and Above Average Process ratings.

While the team has seen a few changes this year, it remains strong. Firm veteran Jeffrey Lager stepped off this fund on April 1, 2024, and the firm disclosed Aline Avzaradel as a named manager. She began running a sleeve of the portfolio two years ago and has 22 years of industry experience. Additionally, Alan Wilson will depart the fund at the end of the year as he steps back to focus on other duties. Yet, seven experienced managers remain. Alan Berro, who heads the nine-manager team, started in the industry in the 1980s and has run money here since the late 1990s. The other managers each have more than 20 years of investment experience. Behind management sits a deep and talented team of more than 100 analysts.

The time-tested approach here centers on dividends and the ability to pay them, but it does have some flexibility to invest in nondividend payers. It prioritizes US investment-grade companies with a long history of paying dividends, but leadership has wisely updated the guidelines in response to seismic market shifts over the years. For example, during times of heightened stress like the pandemic, the fund’s board granted temporary approval for managers to continue holding stocks like General Motors GM, which suspended its dividend in the wake of the pandemic. The managers can also allocate a small portion of the fund’s assets to nondividend payers that combine ongoing superior profitability with modest leverage relative to industry peers such as Cadence Design Systems CDNS.

This fund’s focus on dividends has led to a fairly conservative portfolio that has served risk-averse investors well. The fund has gotten ahead by offering a less volatile portfolio that consistently holds up well in downturns. Since Berro’s 1997 start, the fund has held up better than the S&P 500 in all but four market declines of 10% or more. On the other hand, it has typically lagged in more growth-fueled rallies. For example, the fund trailed the index in 2023 and the first half of 2024 while landing in the bottom half of the peer group during both periods, in part thanks to smaller stakes in tech companies with small or no dividend yields, such as Nvidia NVDA.

But over the long run, this fund should deliver better results.

American Funds Washington Mutual: Performance Highlights

The fund’s conservative posture and income orientation have performed well since longest-tenured manager Berro’s July 1997 start. From that time through June 2024, the A shares’ 8.9% annualized gain beat the fund’s current large-blend and former large-value category peer norms by 1.4 and 1.6 percentage points, respectively. It narrowly lagged the S&P 500 during that period by 10 basis points. But thanks to below-average volatility, as measured by standard deviation, its risk-adjusted results were superior to the index and category peers.

The fund has succeeded by losing less in down markets. For example, in 2022, the fund lost 8.5% versus the index’s 18.1% loss, and it landed in the category’s top decile. The fund had strong picks across the board, but industrials firms such as Northrop Grumman NOC and semiconductor giant Broadcom AVGO led the charge. The fund has been consistent, too. It held up better than the index in all but four market pullbacks, as measured by a decline of 10% or more, since Berro’s 1997 start.

Yet, the fund doesn’t typically keep up with the index in more-growth-fueled rallies. For example, the fund trailed the index in 2023 and the first half of 2024 while landing in the bottom half of the peer group during both periods, in part thanks to smaller stakes in tech companies with small or no dividend yields, such as Nvidia.