Noted investor Hilda Applbaum's financial strategy was honed at an early age — and decades later, has resulted in industry accolades. The portfolio manager at Capital Group runs the The Income Fund of America and was named one of the top female fund managers of 2024 by Morningstar earlier this year. She was also nominated for outstanding portfolio manager in 2022 by Morningstar.
Applbaum grew up as a first generation American to Polish parents who were Holocaust survivors. By 17, she had lost both parents, first her mother when she was 11 years old followed by her father six years later. She started working at the age of 14 and put herself through college.
"They really were role models of hard work, perseverance, savings, and wanting stability and a nest egg," she said in an interview with CNBC. "So, low volatility, income producing, risk averse kind of became ingrained in who I was as a person." Applbaum, who Morningstar calls a "seasoned and skilled asset allocator," joined Capital Group 29 years ago after a stint at the California Public Employees' Retirement System.
She said she "grew up" at Capital Group — first as an analyst, then a research portfolio coordinator. In addition to now being a portfolio manager, she is the principal investment officer of The Income Fund of America. The fund currently has a 3.
77% 30-day SEC yield and a 0.37% expense ratio. RIDFX 1Y mountain Income Fund of America, institutional shares "We pride ourselves on producing income consistently; secondarily, providing for capital appreciation," said Applbaum, now 63.
"The ability to be consistently a provider of income has a lot to do with the flexibility to move between assets and between different parts of the bond market as well." The fund relies heavily on equity income, with at least 60% always invested in stocks. The idea is that the capital appreciation of the stocks can help protect against inflation.
There is also a minimum threshold for dividend yield, which is currently 2.7% to be eligible for purchase into the fund. These days, equities make up about 70% of the portfolio.
"Our equity analysts and portfolio managers are really quite enthusiastic about the opportunity set," she explained. "On the other side, our fixed income managers, while they're finding lots to invest in, we've got credit spreads at pretty tight levels right here, right now." The strategy has paid off over the long term, according to an analysis by Capital Group.
If an investor made a $100,000 investment in The Income Fund of America, F-2 shares, on the fund's inception date of Dec. 1, 1973, it would be worth $15.7 million and have an average annual total return of 10.
61%, as of Dec. 31, 2023. In comparison, its benchmark — which is 65% S & P 500 and 35% Bloomberg U.
S. Aggregate Index — would be worth $11.1 million and have a 9.
85% average annual total return during that same time period, per the firm's data. Keeping volatility low The firm uses a multiple manager system, with funds divided into multiple sleeves. The six equity portfolio managers and 4 fixed income managers on the fund each have autonomy over their sleeves.
The analysts on the team also run sleeves of the fund. "It allows for diversity of opinion," Applbaum said. "It allows managers to be invested in the things that they're most enthusiastic about.
" The end result is a more diversified portfolio, she added. "What that allows for is a smoother ride along the way, because you're probably investing in more securities, more names than you would if it was a single manager or a couple of managers," she said. "So you do get a probably a less volatile portfolio than you would if it was either managed by committee and everything had to be decided and agreed upon, or if it was a single manager system.
" The fund currently has more than $125.4 billion in assets. Its largest equity sector holding is financials, followed by consumer staples, health care and energy.
Within fixed income, it is heavily weighted to corporate bonds, notes and loans. 'Planting seeds' When selecting stocks, the team pays close attention to dividend sustainability. That means looking at the stock's payout ratio and any potential liabilities and rating agency pressures that could put management in a position to choose between the company's credit and its dividend payout.
However, dividends aren't a sole deciding factor, she noted. "It's kind of a hand raising or flag waving that says, 'Look at me, see if there's something more to this story,'" she said. One area they focus on are idiosyncratic opportunities where the market may have given up on an industry or company, but the team sees something differentiated that could grow the stock in the long run.
"I always want to be planting little seeds, and they're not going to grow overnight," Applbaum said. "That's a really successful investment, where you can buy it at one stage of a company's lifecycle and then hold it through to various other stages." Its top holding is Philip Morris , which has tremendous free cash flow to sustain its dividend and invest in its next generation of products as consumers move away from cigarettes, she said.
"You [are] getting paid to wait while they figure out what the next chapter in their lifecycle is going to be," she said. Another top holding is Broadcom , which has taken off amid the hype around artificial intelligence. Shares are up almost 50% year to date.
"It's not in the fund because it's a cheat factor. It's in the fund because we've owned it for a really, really long time," she said. "We bought it when they were just seeds and now this is fairly tall grass.
" Finding opportunity now Right now, Applbaum sees opportunity in industrials with names that had faced some issues and are now refocusing or restructuring. She also likes the higher yielding, low growth types of companies that have been overlooked as investors favor growth. The names can maintain their dividend because they have good balance sheets and they may not need a lot of capital to reinvest in the business.
"They don't have a lot of growth or maybe they don't have any growth, but they have the ability to manage for margins as they're older businesses and can right-size certain aspects of their business," she said. Meanwhile, she expects income funds to become very interesting as the Federal Reserve cuts rates. At first, investors' knee-jerk reaction may be to buy bonds, she said.
"Then as they see the reinvestment rate go down, it'll be, 'Well, wait a minute, my income is going down along with that,'" she said. "Something like an income fund, and this one in particular that has the flexibility to move between assets and different types of bonds, will be particularly attractive.".
