Chink in the armor of American Funds

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Feb 23, 2010 11:59 am

http://www.onwallstreet.com/news/Capital-Rothenberg-401k-2665915-1.html






 
Capital Group Struggling With Biggest Outflows in 79-Year History

Investors in the mutual funds of Capital Research & Management appear to have taken notice of the funds being beaten by more than half of their peers in 2008 and 2009, as redemptions are coming in at the fastest pace the company has seen in its 79-year history. Last year alone, the company was hit with $25.5 billion in redemptions, and in the previous year, $16 billion.
 

Although the $1.18 trillion firm’s American Funds was the best-selling mutual fund family for years following the dot-com crash and the fund trading scandal, since it remained largely unscathed by the litigation, the company is experiencing a reversal of fortune.

Capital Research Chairman James Rothenberg notes how the flagship, $149.3 billion Growth Fund of America delivered an average annual return of 10.7% over the past 15 years, compared with the S&P 500’s 8%, and over the past decade, the fund rose 2.3%, while the S&P lost 0.95%.


“It’s a matter of whether you believe the people you put your money with can deliver,” Rothenberg told Bloomberg Markets magazine. “I think history shows, including all the bad stuff, that we’ve delivered.”


Unlike competitors that are coming out with tactical-allocation solutions and low-cost alternatives such as exchange-traded funds, as well as bond funds, a best-seller of the past year, Capital Group is sticking to the long-held premise of telling investors to trust mutual fund managers to traditional asset allocation, Rothenberg said. In addition, the company continues to sell its team-managed funds through advisers, and its fund lineup remains concentrated on equity funds.


“There are a lot of things we could do to grow sales, but we won’t do them,” he said.


The challenges of the past two years, however, forced Capital Group to lay off 1,300 workers, or 14% of its workforce, last year, including a number of portfolio managers for poor performance. And as a new tactic, Capital Group is pursuing small- to medium-sized 401(k)s.

Feb 23, 2010 12:00 pm

Those numbers are just insane...

Feb 23, 2010 12:08 pm

You mean because they had more outlfows in one year than most fund companies have in total assets?

Feb 23, 2010 12:15 pm

It's a love/hate relationship we have with American Funds.  You love the performance consistency with a lot of their funds, but hate the arrogance ("There are a lot of things we could do to grow sales, but we won’t do them").  It's hard to argue with the performance numbers of funds like CWGIX and CAIBX, but if they could give us that kind of return with a little bit of humility it would be great. 

 
We have a new wholesaler.  Maybe 37-38 years old.  He lives in Kansas.  I'm on the very eastern edge of his territory.  Think I'll see him more than once or twice a year?  Dude pulls up in a BMW 7 series.  Now, I know you're in your car a ton, but can we at least show some sort of restraint in the purchase of your automobile?  That's the kind of stuff that gets under my skin.
Feb 23, 2010 12:40 pm
Spaceman Spiff:

It's a love/hate relationship we have with American Funds.  You love the performance consistency with a lot of their funds, but hate the arrogance ("There are a lot of things we could do to grow sales, but we won’t do them").  It's hard to argue with the performance numbers of funds like CWGIX and CAIBX, but if they could give us that kind of return with a little bit of humility it would be great. 

 
We have a new wholesaler.  Maybe 37-38 years old.  He lives in Kansas.  I'm on the very eastern edge of his territory.  Think I'll see him more than once or twice a year?  Dude pulls up in a BMW 7 series.  Now, I know you're in your car a ton, but can we at least show some sort of restraint in the purchase of your automobile?  That's the kind of stuff that gets under my skin.
 
I dont see a problem with this comment. They are sticking to their business plan. Jones does the same thing. Jones could have 3 advisors per office but won't. Jones could fire more underperforming advisors but wont. I have no problem with a successful company sticking with their game plan. You don't have to change everything just because things aren't going perfectly.
 
Ice - Why the extreme hate with American Funds ?
Feb 23, 2010 12:42 pm
Spaceman Spiff:

It's a love/hate relationship we have with American Funds.  You love the performance consistency with a lot of their funds, but hate the arrogance ("There are a lot of things we could do to grow sales, but we won’t do them").  It's hard to argue with the performance numbers of funds like CWGIX and CAIBX, but if they could give us that kind of return with a little bit of humility it would be great. 

 
We have a new wholesaler.  Maybe 37-38 years old.  He lives in Kansas.  I'm on the very eastern edge of his territory.  Think I'll see him more than once or twice a year?  Dude pulls up in a BMW 7 series.  Now, I know you're in your car a ton, but can we at least show some sort of restraint in the purchase of your automobile?  That's the kind of stuff that gets under my skin.
 
It is the same sort of thing with you Jones guys.  It just burns my arse to see a Jones FA pull up in his '87 Tarus, wearing his J.C. Penney polyester suit, then begins spouting off how he works for the greatest company in the industry...    LOL, just having some fun.
Feb 23, 2010 12:48 pm
Spud34:
Spaceman Spiff:
We have a new wholesaler.  Maybe 37-38 years old.  He lives in Kansas.  I'm on the very eastern edge of his territory.  Think I'll see him more than once or twice a year?  Dude pulls up in a BMW 7 series.  Now, I know you're in your car a ton, but can we at least show some sort of restraint in the purchase of your automobile?  That's the kind of stuff that gets under my skin.
 It is the same sort of thing with you Jones guys.  It just burns my arse to see a Jones FA pull up in his '87 Tarus, wearing his J.C. Penney polyester suit, then begins spouting off how he works for the greatest company in the industry...    LOL, just having some fun.


I know it is OT, but this brings up a good point and something I have been bouncing around.  What kind of car IS suitable for an FA.  I can afford an 05 or 06 3 series Bimmer, but does it send the right message or the wrong one?  I could get a bland Taurus, but does that take away credibility?  Being that I will be going to A LOT of homes what should I be driving to convey professionalism and success, without looking arrogant and wasteful.
Feb 23, 2010 1:34 pm

Fair enough. I never use them exclusively, but I do like to use some of their funds in certain situations. I have never really run across any extreme arrogance with their wholesalers. The ones that I have dealt with have been helpful and talk less about American Funds and more about how I can build my business. I always appreciate that.

Feb 23, 2010 2:06 pm
B24:

You mean because they had more outlfows in one year than most fund companies have in total assets?


Yeah pretty much...
Feb 23, 2010 2:15 pm
Spaceman Spiff:

It's a love/hate relationship we have with American Funds.  You love the performance consistency with a lot of their funds, but hate the arrogance ("There are a lot of things we could do to grow sales, but we won’t do them").  It's hard to argue with the performance numbers of funds like CWGIX and CAIBX, but if they could give us that kind of return with a little bit of humility it would be great. 

 
We have a new wholesaler.  Maybe 37-38 years old.  He lives in Kansas.  I'm on the very eastern edge of his territory.  Think I'll see him more than once or twice a year?  Dude pulls up in a BMW 7 series.  Now, I know you're in your car a ton, but can we at least show some sort of restraint in the purchase of your automobile?  That's the kind of stuff that gets under my skin.

2 points...
 
1. Not sure why you think CWGIX and CAIBX performance is all lthat good... I use to when I was at jones too though(so I understand)...
 
2. Why do I care what type of car somebody drives....
a. If you were in your car all day long and got a stipened for it, wouldn't you buy or lease something nice..(use it or lose it)
b. biggest client has 3 cars(1. nice family sedan 2. wife's murano  3. Pick up truck(old)) and he only drives the sedan when with his wife, other than that he drives this rusty terrible looking pick up truck..
c. how somebody choose to spend their money doesn't not make them better or worse than anyone else... I have a two friends who produce the same amount at the same firm...Friend 1 takes tons of trips to Florida whenever he wants, drives an Acura and wife has some type of SUV(explorer possibly)... Friend 2 owns a house that cost 4x the amount of friend 1, drives new series 7, wife drives that Mercedes suv, and never leaves ever..(I keep waiting for him to have a bad six months so I can pick up his house on the cheap ).
 
To me a car will always be a depreciating asset, so I look for good value(i.e. used, low miles)...
Feb 23, 2010 2:27 pm

Generally speaking, my AMF wholesalers have been pretty good.  Helpful to a point. 

 
AMF is OK as long as you want to do the A-share, single fund family thing.  They are very good at a few things (international LC value, domestic LC value, international growth), and OK at some things (Domestic growth), and then marginal at most everything else (fixed income, emerging markets, small caps, anything ecclectic).
I think CWGIX and CAIBX are their best funds.  Europacific is pretty good - sort of an emerging markets-lite, I like Fundamental Investors. 
However, I think their size does get in their way.  Not necessarily in that they are "closet index" funds, but rather they lack the agility to get out of the way when the schit hits the fan.  Then again, even if the funds were smaller, I don't know that they are wired that way.  That's why them and Jones are such brethren - they both believe in long-term buy-and-hold quality sort of stuff.  If you believe in that, they are a good fund company.  They definitely pursue quality.  Although, IMHO they got caught with their hands in the cookie jar on the fixed income side last year (2008).  My wholesaler insists that it was just part of the focus of the Bond Fund (higher than average income).  In his defense, that is true - their prospectus always identified that as a focus.  I guess it is up to us to interpret the eventual outcome (sliding down the quality scale).  Their big mistake, though, was then turning around and running to Treasuries after they got buried.
Feb 23, 2010 3:04 pm

B24 - good points about the pros and cons. American funds are good if you are looking for balanced mutual funds. (BTW- don't they all own Chevron?)

Feb 23, 2010 3:12 pm

chief - CWGIX and CAIBX do have good performance.  I didn't say the best.  I said good.  Are there other funds that have performed better?  Yep.  But try and find a client who has owned CAIBX or CWGIX for the last 10 years who isn't happy with what they've seen.  


I understand that the wholesalers get $$ to lease a car.  It's his choice what he gets.  I'm just saying that if your company has an image problem, like AMF does, then leasing the biggest sedan that BMW has in it's lineup might not be the best way to go.  Pretentious might be the best word to describe it.  Their choice of car won't be the deciding factor in what fund family I choose to use, but like I said, it gets under my skin. 
Feb 23, 2010 3:22 pm
HAcoreRD:
Spud34:
Spaceman Spiff:
We have a new wholesaler.  Maybe 37-38 years old.  He lives in Kansas.  I'm on the very eastern edge of his territory.  Think I'll see him more than once or twice a year?  Dude pulls up in a BMW 7 series.  Now, I know you're in your car a ton, but can we at least show some sort of restraint in the purchase of your automobile?  That's the kind of stuff that gets under my skin.
 It is the same sort of thing with you Jones guys.  It just burns my arse to see a Jones FA pull up in his '87 Tarus, wearing his J.C. Penney polyester suit, then begins spouting off how he works for the greatest company in the industry...    LOL, just having some fun.


I know it is OT, but this brings up a good point and something I have been bouncing around.  What kind of car IS suitable for an FA.  I can afford an 05 or 06 3 series Bimmer, but does it send the right message or the wrong one?  I could get a bland Taurus, but does that take away credibility?  Being that I will be going to A LOT of homes what should I be driving to convey professionalism and success, without looking arrogant and wasteful.
 
Boring Taurus?  You mean this: 
 
 
vs BMW 5 series:
 

 
For the money, I'd buy the Taurus.  I'd pop for the SHO version though.  You can spend the extra $10K you'd keep in your pocket on something else.   
 
 
 
 

 
Feb 23, 2010 3:23 pm

RED X

Feb 23, 2010 3:41 pm

Sorry - supposed to be the 2010 Taurus SHO and the 2010 BMW 5 series.  Stupid Jones computer.

Feb 23, 2010 3:50 pm

I agree spiff, the 2010 SHO would fit the ticket.  But considering they are nearly 40k, and I refuse to finance a car, it's not an option.  I was looking at a 2-3 year old used car.  In the 15-20k range which would buy me a "boring" Taurus. 

Feb 23, 2010 4:43 pm

Pound-for-pound, horsepower-for-horsepower, and dollar-for-dollar, the Chevrolet Corvette ZR1 is the greatest sports cars ever built.

638 HP.   0-60   3.1



Sure, you don’t get the supercar badge or mid-engine placement that you get with the many a Prancing Horse or Raging Bull, but for $106,000 the Corvette ZR1 provides more horsepower, far more torque, and just as thrilling a driving experience. It is the greatest US car ever built. Maybe the best car value EVER.

Hang with a 911 Turbo









Feb 23, 2010 4:46 pm

1987 Huffy Dirt Bike, no seat, is the way to go.

Feb 23, 2010 4:52 pm
Shania Twain:

Pound-for-pound, horsepower-for-horsepower, and dollar-for-dollar, the Chevrolet Corvette ZR1 is the greatest sports cars ever built.
638 HP.   0-60   3.1

Sure, you don’t get the supercar badge or mid-engine placement that you get with the many a Prancing Horse or Raging Bull, but for $106,000 the Corvette ZR1 provides more horsepower, far more torque, and just as thrilling a driving experience. It is the greatest US car ever built. Maybe the best car value EVER.
Hang with a 911 Turbo




 
Agreed.  But if I couldn't afford the ZR-1, I don't think I would buy a standard 'Vette.