American Funds

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Jan 12, 2011 1:01 pm

American Funds has outperformed for much of the last 10 years, and historically dominated in terms of raking in assets. See this story we wrote in 2004: http://bit.ly/hhOP4O. But last year, investors redeemed about $43 billion from American Funds through November.

Is anyone out there still heavily invested with American Funds? If so, what funds are good, what funds are bad? Who has stayed with them throughout last year and what is your overall impression of them now?

Are they a victim of their own success? Please contact me if you have any insights.

Jan 12, 2011 1:10 pm

They are too good for their own customers. I hear that from everyone that's licensed, and have for years. That kind of damage is going to haunt them for a long time to come, even if they fixed it today.

Jan 12, 2011 1:44 pm

No wholesaler support, no tactical funds, tons of overlap, no asset allocation, weak on the fixed income side, 12b1s delayed a year, and no style funds.

With that said, I like Capital Income Builder.

Jan 12, 2011 2:15 pm

[quote=SuperMan]

No wholesaler support, no tactical funds, Didn't hear any calls for tactical funds when the market was doing well.... tons of overlap of course, that is why they did so well (and the int'l allocation), no asset allocation EXPLAIN?, weak on the fixed income side Isn't everyone?, 12b1s delayed a year, and no style funds.

With that said, I like Capital Income Builder.

[/quote]

Jan 12, 2011 2:20 pm

[quote=SuperMan]

No wholesaler support, no tactical funds, tons of overlap, no asset allocation, weak on the fixed income side, 12b1s delayed a year, and no style funds.

With that said, I like Capital Income Builder.

[/quote]

Couldn't have said it better myself.  The problem with their lineup is that it's really tough to use multiple equity funds from them.  Not only is there a lot of overlap, but even without position-specific overlap, there are so many holdings that their returns are so very highly correlated to each other.

Jan 12, 2011 2:57 pm

I used to use American Funds all the time.  Almost exclusively.  In fact 6 of my top 10 are still in American (CWGIX, CAIBX, AGTHX, ANCFX, AMECX, and AWSHX.  A few years ago I woke up and realized that CAIBX and AMECX are almost the same fund and they have horrible overlap with AWSHX and ANCFX.  So, I stopped using them exclusively and started to add other funds to my lineup. 

Then 2008 happened.  You want to know why there were a ton of outflows?  2008 is the reason why.  When those funds dropped as much if not more than the S&P 500, it was time to second guess.  Then when they haven't rebounded like the rest of the market, you start to talk to clients about alternatives. 

Throw in there lack of service, lack of communication, lack of support, lack of diversification, etc and you have people noticing that the grass is greener. 

Another reason might have to do with EDJ and Advisory Solutions.  There are a ton of vets here that,  like me, used American Funds almost exclusively for years.  They've embraced Advisory as a better way to build and monitor a porfolio (and get more income).  We've put about $50 billion in Advisory over the last couple of years.  I'd bet that a healthy chunk of those outflows are from Jones FAs. 

With that said - Capital World Growth and Income, Fundamental Investors, and Capital Income Builder are great funds. 

Jan 12, 2011 9:58 pm

I still have a fair amount of client money in the fund family, but mostly A shares.  Most of the C shares and fee based I switched to other fund families for the same reasons outlined here.  The funds they have that are ok are income fund of america, fundamental investors, Cap world g/i, and cap income builder.  I haven't put any new money in any of their funds in over 2 years.

Jan 13, 2011 8:43 pm

I'm with the rest here: overlap, overlap, overlap. No wholesaler support at all, crappy service at their call centers. I won't use them much going forward.

Jan 14, 2011 12:24 pm

I think the service is pretty good actually, but yea, I have never seen the American Funds Wholesaler.

Jan 14, 2011 12:24 pm

I think the service is pretty good actually, but yea, I have never seen the American Funds Wholesaler.

Jan 14, 2011 12:37 pm

Met their wholesaler once, and he made it seem like he was doing me a favor and I should have been the one to pick up the lunch tab.  But a side from him being a dueche, my big complaint is the 12b-1 fees don't kick in for 13 months.  If I do a mil with them in a year I miss out on $2,500 bucks in 12b-1 fees each year.  Over a course of 20 years that works out to $50k less ($20k less in my pocket net) than what I would get if I took my business to any one of the other 2,000 mutual fund companies out there.   And over 20 years of taking my business elsewhere I get atleast 20 more free lunches than what I would get by given my business to AF, and like free lunches ALOT!!

If their performance was head and shoulders above the rest I could maybe justify it, but that's not the case.   It's tough to find one reason why I should offer American over Invesco, Franklin, MFS, etc.

Jan 14, 2011 12:54 pm

I can give you two:  Cost and dividends. 

American Funds is one of the cheapest fund families out there.  They do zero advertising.  They spread their wholesalers way too thin.  They don't even give out golf balls any more.  Our wholesaler likes to tell us the prize closet is closed.  I think they even make him buy the pens he hands out when we do regional dinner meetings with him.

All that, along with the size of the limited number of funds they run, keep their costs really down.  Clients like that. 

American pays really good dividends.  You look down the list of our preferred funds and in almost every category on the equity or balanced side the best dividend comes from American Funds.  Clients like dividends too. 

So low cost and high dividends.  Clients aren't paying much for money management and they're seeing money hit their accounts on a quarterly basis.  In their minds, and therefore in the minds of advisors, that's a great combination.  It's amazing how much underperformance or overlap clients will overlook when they believe they're getting a good deal and they're getting those regular checks. 

Jan 14, 2011 1:43 pm

It dawns on me, that many companies are just this stupid. In light of all obviousness, you dig deeper into your own self absorbed vision of how things should be. Good method to find stocks to "sell"....

You could shove this page in front of a policy making Director at AME Funds, and they'd still not get it. Oh well, doesn't bother me...

Jan 14, 2011 2:05 pm

 you dig deeper into your own self absorbed vision of how things should be. Good method to find stocks to "sell"....

Years ago, I found out the American Rep was snootier than all the rest. Even the inside guy was a snoot bag.

Late last night I was taking a walk and thinking back on the good old days, how all of those wealthy wholesalers used to stop by my office, take me to lunch and golfing, sponsor my events. The Oppenheimer guy told stories about how his wife wrote a check to buy a new car out of earnings from Rochester Municipal (down about 60% at one point). Fidelity guy got too drunk to play decent golf.  Now they don't stop by any more. Oh wait, I told them all I don't put new money to 12b1s so much any more.

( I still like MFS and use their stuff.)

Jan 18, 2011 4:24 pm

[quote=squash2]

No wholesaler support, no tactical funds, Didn't hear any calls for tactical funds when the market was doing well.... tons of overlap of course, that is why they did so well (and the int'l allocation), no asset allocation EXPLAIN?, weak on the fixed income side Isn't everyone?, 12b1s delayed a year, and no style funds.

With that said, I like Capital Income Builder.

[/quote]

 I'm not sure whether this is a sarcastic post or not. Have you looked at PTTAX vs ABNDX, for example?

Anyway, if I HAVE to use American Funds: New Perspective, Smallcap world, Bond fund of America. That's the only mix that makes sense to me. I don't like American Funds. From a risk management standpoint, they're awful. I sat with an older gentleman last week who showed me 7 of their funds in a Trust. In '08, he shows me a 38% hit! and asks me to explain it to him. It was brutal and he wasn't the first American Fund account I've seen get hit that hard.

Speaking of redemptions, a broker who I used to work with at a previous B/D chatted with me last week. He had a 3 million dollar account, exclusively in American Funds, pack his bags and ACAT out after 14 years citing the broker's resistence to look at non-American Funds. The broker still didn't get it, opting instead to point the blame to emotions and the media.

Jan 19, 2011 6:45 am

I can give you two:  Cost and dividends. 


American Funds is one of the cheapest fund families out there.  They
do zero advertising.  They spread their wholesalers way too thin.  They
don't even give out golf balls any more.  Our wholesaler likes to tell
us the prize closet is closed.  I think they even make him buy the pens
he hands out when we do regional dinner meetings with him.

If you want cheapest fund families, buy Vanguard index ETF's.

I love showing clients why its better to pay a 1.8% ER and earn 10% net of that, than a 1% ER and earn 8% net of that. Thats what i get paid for.

American Funds is pretty much a bunch of indexers with huge overlap among their funds. And they recognize they have a problem. Thats why they are coming out with all these new funds like NY Muni, and other new ones recently announced.

I haven't used them in years.

Jan 21, 2011 10:49 am

Exactly.

SF has it right, along with many others on here.

To use American Funds exclusively for a client is almost criminal. There is too much overlap. To not use ANY of there funds is also a bad idea as they are a decent jack of all trades equity fund family. You just can't use them exclusively. Their wholesaler support is awful.

Now that you mention it, isn't American Funds just a watered down, slightly more expensive Vanguard Fund Family like SF says?

Oh and squash, AF bond family sucks. As for 'isn't that for everyone' ....no not at all. There are plenty of very good fund families with far superior bond funds than AF.

Jan 23, 2011 10:24 pm

There was an Evergreen wholesaler who came to our office when I was at SB, and he had a poster of a guy in a suit with a big grin on his face.  He asked if we knew who it was.  No--nobody did.  Then he introduced him as our American Funds wholesaler, who gets paid every time we drop a ticket.  Wouldn't it be more fair to help the wholesalers who are coming by regularly and taking us to lunch?

Jan 24, 2011 1:35 am

The AF back office ops desk is great, no matter which service center you get. I've never had a bad experience with them. The wholesaler in our area is an arrogant a-hole. I stopped using them once I moved to fee based model. Too many better performers in each category to stay with them. The size of their funds was also an issue. Their commitment to holding bank stocks really did them in though. It made them shine in the tech crash, but killed them in 2007-10.

Btw, Jones brokers are damn lucky their firm finally brought in some form of a fee based platform for them when they did. Otherwise, they would have starved during 08 & 09. They bailed on AF's almost solely to survive. Can't blame them for it, though.

Lew

Jan 24, 2011 9:55 am

First off I hate AF.

That said, the performance since 2008 is not entirely their fault.  When you are the largest mutual fund familiy, and the majority of your clients are small accounts, the entire middle investor gets spooked with everything selling off, those outflows probably caused the managers to sell some decent positions in order to stay within their prospectus' guidelines. 

Once again though, I agree with SportsFreak and LSUAlum.  Too much overlap, and glorified index funds.

Also, reliance on wholesalers is pretty shitty.  Who cares if they come by?  Do what's right for your clients and the money will flow.