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Digging Into Manager Overlap At American Funds

Comments

  • edited March 2012
    Ted- We have a major investment in American Funds, and have been able to invest there without incurring any load. Their ER is decent, but sometimes it seems quite difficult to find adequate diversity within AF because of the manager overlap situation. Thanks for the info.

    Regards
  • Seems like a lot of cooks in the kitchen to me. I don't know who wrote the M* comments. But I think they are full of it. Seems like M* wants to sell premium services any way they can. Just my 2 cents.
  • edited March 2012
    Not necessarily disagreeing with your comments, but frankly a little confused by them.

    If you are saying that American Funds has "a lot of cooks in the kitchen", I'd agree, but what does that have to do with"who wrote the M* comments"? And then you say that "they" (presumably Morningstar) "are full of it". Meaning what? That American Funds doesn't have "a lot of cooks in the kitchen"?

    I find no direct reference in the article to "premium services", and the article stands well on it's own without any additional M* info, so how is that relevant? By the way, please note that I have absolutely no interest in nor particular love for M*.

  • American funds does have more managers than they need. Where they are going seems to be very vague. By the way we pay pay for this poney show one way or the other. No performance incentive that I can see. They all stay and still get paid.
    AGTHX HAS A YIELD OF .68% and a expense of .68%. Plus a 5.75% front load. Gleaned this without going to their premium content. Don't know how the waived loads - if there is any would work out. I dont think I want to own it. But I might be missing something!!

    M* - There were several items I wanted to look at in the M* links but every time They wanted me to enroll in their premium services. I think I wanted to look at fund analysis and yearly earnings records which are premium content along with other links.
    Also wanted to go to the link in this statement on the M* AGTHX page -

    "This mutual fund's unpopularity has given it some contrarian appeal.
    Read full Analyst Report"

    The statement above is on premium service and hype to sell their services IMHO....

    I went on to read the comments and 3 out of 7 were pumping the American Funds or M*. This is just my humble opinion.

    Gary
  • "By the way we pay pay for this poney show one way or the other. No performance incentive that I can see."

    The vast majority of funds do not have expense ratios that include a performance adjustment, so this is not news. (The largest family that does use performance adjustments is, I believe, Fidelity, and perhaps the one with the biggest ones, even resulting in a negative ER, is Bridgeway.)

    "AGTHX HAS A YIELD OF .68% and a expense of .68%. Plus a 5.75% front load. Gleaned this without going to their premium content. Don't know how the waived loads - if there is any would work out."

    As far as I know, American Funds never waives loads (if someone has a load-waived A,B, or C fund, e.g. in a retirement account, I'd be interested in knowing about it). What they do, however, is offer a slew of other share classes, some with 12b-1 fees still constituting loads, and others that are genuinely no load. What you can find out from M* (for free!) is that GFAFX, the no-load F-1 share class of AGTHX, is available through Scottrade. M* will also tell you (for free) that this F-1 share class has lower expenses than AGTHX.
  • American Funds family is struggling. Some of their funds are hemmoraging assets in the billions. While they may shrug this off publicly, you can bet they are very concerned. The fact is they built their shop around multiple-advisor run funds, which has some merit. But when they have a half dozen or so large cap domestic funds with many of the same folks running them, there is obviously going to be a good deal of overlap of holdings.

    The company was for years the darling of the commission-driven advisor industry. But after some significant underperformance periods during the last decade, even these folks have pulled big dollars (and, of course, moved to other loaded products, but that is another discussion). American Mutual is perhaps their strongest fund, and it has a decent risk/reward profile. SmallCap World is a very conservative EM fund. Capital World Growth & Income looked pretty good, until Thornburg Income Builder and a host of mimics arrived on the scene. It's dividend yield is downright puny, and the fund has had very little of the growth that it's name would suggest, especially when compared to its peers.

    Forcing all of its managers to essentially work in the same mold has produced funds that have a lot of the same holdings, and behave similarly in good and bad times. Not much diversification here, which I think is the biggest problem for them.
  • Some interesting thoughts. In my mind, I compare and contrast them with Fidelity and Vanguard, for different reasons. Like Fidelity (especially in the 90s) I think they focus on conservative investors (Fidelity pushed the retirement plan side of the house and reigned in its managers). And this can lead to a lot of similar, lackluster performance. Not to mention that many of Fidelity's funds rely on the same analysts, which can also lead to similar performance.

    I've tended to view American Funds as the closest the load world has to Vanguard - low cost, efficiently run, somewhat dull. But one major difference (and something that makes Vanguard more of a one-stop shop than almost anyone else) is that Vanguard outsources the day to day management of many of its funds to a variety of different management companies with very different styles - the antithesis of American. Like American, Vanguard is into the multi-manager approach, but uses different sets of managers for different funds.

    Curious about your opinion of Euro Pacific Growth. That has always seemed a bright spot to me in their roster, and despite being the 800 lb gorilla in the room (isn't that the case for all their funds?), seems to maintain reasonable performance with moderately low risk - the conservative, retirement-oriented profile I mentioned above. And as it continues to perform respectably (albeit having dropped to middle quintile in the past couple of years from top quintile), it is not bleeding cash.
  • edited March 2012
    Reply to @msf: Re load at AF: Yes, indeed, loads are waived under certain circumstances, in both retirement and non-retirement accounts. A significant investment is required, however.
  • edited March 2012
    Yes, exactly my observation also re diversification. Unfortunately, the same investment requirements which reduce or remove the loads also require maintenance of such a high account level that it becomes an all or nothing situation... if we were to take a significant amount out of American the remainder would then be subject to load, if we were to move it around within American.

    As we are primarily interested in a relatively non-volatile retirement environment at this juncture, as opposed to trying to grow our retirement funds, American Funds is minimally satisfactory for our needs. SmallCap World for example is, as you mention, very conservative but just fine for us. New Economy, ANEFX, seems similar. Capital World Growth & Income has been hopeless during the last ten years or so.

    I also agree that American is living in the past... at some point they are going to have to deal with this. As msf mentions below, one saving grace is the relatively low ongoing ER; and as David Snowball somewhat famously observed, dull is sometimes good. However, I would not recommend American Funds for anyone younger due to the loading and lack of diversity involved.
  • Have been in and out of Euro Pacific over the years... agree with your performance assessment.
  • Reply to @msf: For the record, F shares are not available at Scottrade unless you are a Registered Investment Advisor. The web page is incorrect.
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