American Funds Bond Fund of America RBFGX is leaning into what it does best.
This mutual fund’s excellence within the intermediate core bond Morningstar Category has been due to its willingness to fine-tune its balance between incentivizing its managers to pursue a straightforward core bond approach while granting them the flexibility to draw on their respective areas of expertise and broader firm resources. Principal investment officer Pramod Atluri, for example, used the early 2024 public naming of multisector expert Chit Purani as a manager on this strategy to shift some assets from the portfolio sleeves of the team’s mortgage experts to Purani and to the analyst-led research portfolio, which collectively mirrors the exposures of the Bloomberg US Aggregate Bond Index. With these changes, Atluri has sought to nudge the overall fund portfolio’s risk profile away from interest rates and toward yield spreads, which is more in line with the benchmark’s risk factors.
American Funds Bond Fund of America is hardly moving toward becoming a benchmark hugger, though. Its 33% agency mortgage-backed securities stake in September 2024 was 7.7 percentage points more than the benchmark’s and ranked in the peer group’s top quintile. The fund has also continued to invest 2% to 4% of its assets in out-of-benchmark high-yield bonds, especially BB rated credits, which the team believes are poised to move up to investment-grade in the near term. That differentiates the fund from the tamer members of its peer group, which allocate little to nothing to junk-rated debt.
Since 2017, the first full calendar year in which most of the fund’s managers were in place, the mutual fund version of American Funds Bond Fund of America has an excellent record. Its cheapest R6 shares’ 1.95% annualized gain through January 2025 beat the Bloomberg US Aggregate Bond Index by 61 basis points while placing in the top quintile of distinct intermediate core bond category peers. Risk-adjusted results were even better. The R6 shares’ information ratio versus the category index (a risk-adjusted measure of excess return relative to excess standard deviation) ranked first out of 115 rivals.
The author or authors do not own shares in any securities mentioned in this article.
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