Select Active Advantage

Selecting Managers Who Have Delivered

Better Retirement Outcomes
New Research Reveals Three Traits That Have Enhanced Results in Distribution

To meet the financial challenges of retirement, investors will need

investments that can provide a sustainable income stream while
demonstrating relative resilience during market declines.
Downside capture ratio compares a funds return with an indexs
during periods when the index return was negative. In other words,
a lower downside capture ratio indicates that the fund did better in
declining markets.
New research on mutual funds available in the U.S. found that actively
managed funds sharing three traits low downside capture ratio, low
expenses and high firm manager ownership consistently outpaced
benchmark indices and the broader equity fund universe in the
distribution phase.
Funds That Met Three Criteria Outpaced Indices and Active Peers in Our Research
Each trait added value on its own for our study, but the combination was particularly powerful in boosting results versus indices.

Low
downside
capture

Low
expense
ratios

Select Active Funds

High
manager
ownership

Source: Morningstar U.S. database of large-cap actively managed funds. Across each fund category, the research ranked the funds by downside capture, net
expense ratios and manager ownership.

Research was conducted by Capital Group, a global investment management firm originating in Los Angeles, California in 1931.
Capital International Asset Management (Canada), Inc. is part of Capital Group. The information presented in this paper is for
illustrative purposes only and is based on funds available in the U.S. The research methodology is included on the last page. Research
conclusions may significantly vary or have less application in markets that have materially different expense ratios or
other considerations.

Success With Three Traits

The research looked at hypothetical

US$500,000 lump sum investments
in various categories of large-cap
equity strategies, assuming a 4% initial
withdrawal, increasing 3% a year for the
20 years ended December 31, 2014.
The charts below show success rates for
monthly rolling 10-year periods for four
broad categories of actively managed
funds in the Morningstar U.S. mutual fund
database. It also shows results for actively

managed funds within the categories that

had low downside capture, as well as funds
that ranked among those with the three traits
of low downside capture ratios, low expense
ratios, and high manager ownership.
Remarkably, the research found that a
portfolio of funds possessing all three
traits would have had close to 100%
success rates for three of the four
categories we studied.

In distribution, look for funds that meet three key criteria

Percentage of rolling 10-year periods in which funds outpaced indices in a withdrawal scenario (1995-2014). US$500,000 initial
investment, with 4% initial withdrawal, increasing by 3% annually

U.S. Large Cap

100%

Moderate Allocation

100%
66.94%

49.59%
14.88%

24.79%
All Active Managers
(2,508 funds)

Low Down Capture

(867 funds)

Met All Three Traits

(52 funds)

Foreign Large Cap

All Active Managers

(341 funds)

Low Down Capture

(108 funds)

Met All Three Traits

(23 funds)

100%

100%

Low Down Capture

(31 funds)

Met All Three Traits

(7 funds)

World Allocation

69.42%
51.24%

57.02%

23.97%
All Active Managers
(600 funds)

Low Down Capture

(214 funds)

Met All Three Traits

(47 funds)

All Active Managers

(128 funds)

Source: Capital Group, based on Morningstar data of U.S. funds. Based on monthly returns net of fees. Average annualized returns include withdrawals. See methodology section on the last page. U.S.
Large Cap funds are those in the Morningstar Open-End Large Value, Large Blend and Large Growth categories. Foreign Large Cap funds are those in the Morningstar Open-End Foreign Large Value,
Foreign Large Blend and Foreign Large Growth categories. Moderate Allocation and World Allocation funds drawn from Morningstar categories of the same name. Moderate Allocation index is 60% S&P
500 and 40% Barclays U.S. Aggregate indices. World Allocation index is 60% MSCI All Country World Index and 40% Barclays Global Aggregate Index. U.S. index is S&P 500. Foreign index is MSCI All
Country World ex USA. The indices are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.

The Potential for Greater

Wealth

Select active managers have generated

higher returns than market indices over
time. High manager ownership, low
expense ratios and low downside capture
are three screens that identified the funds
that produced superior results.
While withdrawal rates are best decided
in accordance with investor goals and
objectives in collaboration with a trusted
advisor, we compared results for three
retirement portfolios at three different
withdrawal rates.

The research viewed an index portfolio

and a portfolio of select active funds (i.e.,
those funds that met the three screens).
The research looked at hypothetical
US$500,000 investments at 4%, 5% and 6%
initial withdrawal rates, that increased 3%
each year for the 20 years ended December
31, 2014. The analysis shows that the select
active portfolio delivered superior results
versus the index, demonstrating greater
resilience and wealth creation at higher
withdrawal rates.

The bottom line:

In all three withdrawal scenarios the select active portfolio generated significantly higher results than the
index portfolio.

Select active portfolios showed resilience during downturns and delivered greater wealth
Return of a hypothetical US$500,000 initial investment, assuming an initial percentage withdrawal rate, increasing by 3% each year
thereafter, for a 50% Moderate Allocation / 50% World Allocation portfolio. For the 20 years ending December 31, 2014. All results in
U.S. dollars.

4% Withdrawal Scenario
$500,000
initial
investment

5% Withdrawal Scenario

6% Withdrawal Scenario

$1,678,683
+85%
greater
ending
wealth
$908,220 than index

$1,384,682
+107%

+152%
$670,185

With$432,150
drawals
$806,111

Withdrawals
$671,759

Withdrawals
$537,407
Index

$1,090,680

Select
Active

Index

Select
Active

Index

Select
Active

Annualized Results for 4% Withdrawal Scenario

Average Annual Returns

Standard deviation
Sharpe ratio

Index

7.15%

Select Active

9.50%

10.17

9.06

0.43

0.71

Source: Capital Group, based on Morningstar data. Hypothetical results are based on monthly returns of portfolios from January 1995 to December 2014. Average annualized returns include
withdrawals. The components of each allocation can be found in the Methodology section on the last page. The index portfolio for the 50% Moderate Allocation / 50% World Allocation portfolio
consists of 60% MSCI All Country World Index and 40% Barclays Global Aggregate Index. Portfolios were rebalanced monthly. The indices are unmanaged and, therefore, have no expenses.
Investors cannot invest directly in an index.

The Capital Advantage

Since 1931, Capital Group has been singularly focused on delivering superior, consistent results for long-term investors using
high-conviction portfolios, rigorous research and individual accountability.

Aligned with investor success

The Capital SystemSM

Built to last

We base our decisions on a long-term

perspective, which we believe aligns our
goals with the interests of our clients.
Achieving superior, long-term returns is
our only goal, so managers are rewarded
for their results, not the level of assets
they manage. Collectively, Capital Group
associates are significant investors in the
companys investment offerings.

Our investment process, The Capital

System, is designed to enable
individual investment professionals to
act on their highest convictions, while
limiting the risk associated with
isolated decision-making. Each
portfolio is divided into portions that
are managed independently by investment
professionals with diverse backgrounds,
ages and investment approaches. A
disciplined, multilayered governance
structure oversees the systems operation.

As a private firm with an independent

charter and robust balance sheet, we
invest in improving our capabilities
through good markets and bad. With
one of the highest retention rates in the
industry,* we have some of the most
experienced investment professionals,
a deep bench and a commitment to
sustaining our investment process
over generations.

Methodology
The research began with 3,556 actively managed mutual funds available in the U.S. We used a two-step screening process, beginning
with the downside capture ratio. Across each fund category, we sought the lowest two quartiles of funds, ranked by downside capture
ratios. Using this subset, we then screened for low net expense ratios (i.e., operating expenses and management fees for mutual funds
expressed as a percentage of fund assets) and high manager ownership the intersection of those two groups seeking the top
quartile for large-cap domestic funds and the top two quartiles (50%) for large-cap foreign, Moderate Allocation and World Allocation
funds. (Using the top quartile alone for some Morningstar categories would have yielded an insufficient number of funds for our study
to be meaningful.)

*Per Morningstar, for the American Funds, as of December 31, 2014. Based on the percentage of portfolio managers who have stayed with the firm during the past five calendar years. American
Funds are not available in Canada.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.
Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past
performance may not be repeated.
For informational purposes only. Not intended to provide tax, legal or financial advice. We assume no liability for any inaccurate, delayed
or incomplete information, nor for any actions taken in reliance thereon. The information contained herein has been supplied without
verification and may be subject to change. Capital Group funds are available in Canada through registered dealers.
Capital Group funds and Capital International Asset Management (Canada), Inc. are part of Capital Group, a global investment
management firm originating in Los Angeles, California in 1931. Capital Group manages equity assets through three investment groups.
These groups make investment and proxy voting decisions independently. Fixed-income investment professionals provide fixed-income
research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely
on behalf of one of the three equity investment groups.
12/2015 2015 The Capital Group Companies, Inc.