American Funds

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May 6, 2008 1:40 pm

This is a subject that comes up with many of my friends in the business and I would like to hear other opinions.

 
Are the American Funds bulletproof ?  Obviously their record speaks for itself, but nothing in this industry lasts forever. Or can it ?        
May 6, 2008 2:20 pm
GT Key:

This is a subject that comes up with many of my friends in the business and I would like to hear other opinions.

 
Are the American Funds bulletproof ?  Obviously their record speaks for itself, but nothing in this industry lasts forever. Or can it ?        
 
Of course there not bulletproof. They have a good management style that buys value stocks while providing downside protection.. Just depends on the client. Ask your wholesaler to come and discuss the funds with you.
 
Miss j
May 6, 2008 2:23 pm

Washington Mutual doing 1% in 1999 is not bulletproof.  American funds says, "I have never had to apologize for an American Fund."  I have.  They are very good funds, especially in a down market but no fund family is bulletproof.

May 6, 2008 2:31 pm

By Bulletproof I don't mean they will never have a bad year. I also know their style means some of their funds will never shoot the lights out.

 
What I am talking about is from a size and popularity standpoint can they continue to post above average returns and avoid a Putnam-Federated type of blow up.
May 6, 2008 3:23 pm

I doubt they will ever "blow up".  They have too many safeguards in place (namely their multiple portfolio counselor system for managing funds).

 
I also think their investment philosophy prevents them from having wild swings (up or down).  They aer very conservative, value investors.  Most fo the "blow ups" we witness are due to excessive risk takers on the growth side.
 
But they do run the risk of being very mediocre, especially for younger, more aggressive investors.  For retirees and conservative people, they are great - probably one of the best.
May 6, 2008 4:22 pm

A well diversified portfolio of American Funds - is bullet proof.

May 6, 2008 9:45 pm
apprentice:

A well diversified portfolio of American Funds - is bullet proof.

Can you be well diversified owning only American Funds??
May 6, 2008 9:52 pm

NO.

May 7, 2008 8:10 am

Yes

May 7, 2008 11:03 am
noggin:
apprentice:

A well diversified portfolio of American Funds - is bullet proof.

Can you be well diversified owning only American Funds??
 
You can - you just have to really dive into it.  But I find that being completely diversified with AMF includes some of their less-than-great funds (i.e. Growth Fund, Small Cap World,etc.).  I prefer to start with AMF as my core for 60-80% of my portfolios, then using other funds as satellites.
May 7, 2008 2:54 pm

donatello - do you now disagree with EVERYTHING that Jones says? 

 
It is true that you can't get real estate, or gold, or any number of other sector funds.  But to say you can't build a diversified portfolio at American funds is just stupid.
 
For the record, I build my portfolios similarly to B24.  An American Funds core with some others thrown in for spice.   
 
May 7, 2008 3:57 pm
iceco1d:

No fund family is bullet proof.  You can diversify away non-systematic risk [quite easily] with 1 fund family.



However, you still run the risk of the fund family "going Putnam" on you, if you stick with one. 
 
Agreed.  However, if there was one fund company that I am LEAST concerned about systemic risk, it would be American.  I like their process, and unless their philosophy and process changes, I think you remain relatively safe.  The problem with the Putnam's of the world is that they were chasing returns and had "star manager" issues (this happens many places - look at Fidelity). 
 
Again, I think the biggest risk with American Funds is slipping away into mediocrity.  And unfortunately, that's not always something you can recognize until years have passed.  You look at their returns from 97-99.  Pretty lethargic (actually pretty poor comapred to the market).  Everyone was tolling their bells back then.  They turned it around and proved that they hold up extremely well in bear markets '00-02).  But what if their returns from 2003-2006/2007 had lagged the market?  Then they would have been done.  They would have just wasted a decade by ringing up modest returns at best.  It is always important to see what happens during boom and bust times with them.  Actually, right now, I am not overly impressed with the last 6 months.  I would have expected them to hold up a bit better.  But there's much worse out there.
May 7, 2008 4:13 pm

American is heavily skewed towards value and the value play has been good the past 6-7 years.  As growth becomes a leader, I think American will lag, just as they did at the end of the last decade, IMHO. 

May 7, 2008 4:21 pm

Nothing is bulletproof, what kinda question is that?!?!? Caibx is down this year, aivsx is down, agthx is down.  Not that that is way out of line in a bad market, but it's not bulletproof either.  It's incredibly dangerous to even think that way.

May 7, 2008 5:11 pm

I would think it would be wise to define bullteproof.  I've never sold a single American Fund with the promise that it will never go down.  If by bulletproof you mean will never go down, then you are correct.  They are not bulletproof. 

 
I had a wholesaler, not from American Funds, tell me that AMF does a great job managing statement risk.  He defined statement risk as the risk that your client is going to open up his quarterly statement and decide to fire you. 
 
You might lag the market when it is booming like in the late 90's.  But in the context of it's not always about what you make, it's about what you keep, I think that AMF has a better chance than most of not disappointing.   
May 7, 2008 5:21 pm

I don't know about a better chance, I would say that within the category (GI, G, I, etc...) they do fine.  No better or no worse than the rest of the group with similar historic performance.  A 4 star fund (historically) is a 4 star fund (or 5,3,2,or 1) as long as the beta, alpha and standard deviations are similar over longer periods of time, then the family is somewhat irrelavent. 

 
Stating that, words like bulletproof, that need definitions to be completely understood tend to imply a confidence or performance that may not be sustainable.
May 7, 2008 5:22 pm

oops on the spelling, I was trying to do 2 things at once....

May 7, 2008 8:46 pm

It seems to me, that every fund/fund family has to have its limits before mediocrity is not only possible, but inevitable.

Question; What are American Funds 5 biggest holdings, and once they make a decision to exit, how the hell do they do that in a reasonable period of time?
Question #2 - Any idea of how much overlap there is among the AF Equity lineup, i.e. Wash Mut, Fund Value, Inv co of America, etc?
 
Just food for thought. Admittedly they have done an amazing job as they grow bigger and bigger.
May 7, 2008 10:05 pm

Too Big. These are not the same funds that my Grandfather bought going on 60 years ago. They are hitting legal capacity for many of the stocks they hold. Meaning, their 175th best idea is forced into action because they cannot buy any more Goog. Why are they so loathe to close a fund? The answer "we just add more managers" does not create more stocks in the universe they are choosing. Instead of AWSHX, use Eaton Vance Large Cap Value. Instead of AGTHX, use Janus advisor 40. Instead of Small Cap World, use RCM Global Small Cap. Instead of any of their bond funds, go with Gross or Fuss. Or, if cost is the major concern, just use an ETF. In case you have not noticed, American Funds are just closet index funds.

May 7, 2008 11:09 pm

ICA is 75% domestic, 13% Intl, 12% cash. Owning those same 3 indexes the last 5 years (in same proportion) beat the returns of ICA -at NAV. Facter in loads and ICA loses even worse. The fact that they "beat the S and P" as they say at Jones and elsewhere is not apples/apples. It's simply an easy sale.