News On American Funds

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Apr 25, 2006 2:52 pm

Hey Kool Aid kids, why don't you go to MSN.com and look up the article titled JUMBO Mutual Fund Starts to Tumble.... and then send a wire to your research department and see if they answer why EDJ continues to push American Funds - you know that fund you NEVER have to apologize for... when EDJ has had a sell on Altria for years...


They answered my question. Maybe they will now.

Apr 25, 2006 3:23 pm
munytalks:

Hey Kool Aid kids, why don't you go to MSN.com and look up the article titled JUMBO Mutual Fund Starts to Tumble.... and then send a wire to your research department and see if they answer why EDJ continues to push American Funds - you know that fund you NEVER have to apologize for... when EDJ has had a sell on Altria for years...


They answered my question. Maybe they will now.




Seriously? A sell on MO?

Apr 25, 2006 3:37 pm

MB- Yep . Serious. Dead Serious. Skrainka issued a sell years ago. I asked SEVERAL times about the implications of a Sell on a stock that was the number one holding of FIVE (at the time) American Funds most used funds and was given the geep double talk sqawk. NOW I know why.  


So how about it? Any Kool Aid lovers say I am wrong?

Apr 25, 2006 4:00 pm
munytalks:

Hey Kool Aid kids, why don't you go to MSN.com and look up the article titled JUMBO Mutual Fund Starts to Tumble.... and then send a wire to your research department and see if they answer why EDJ continues to push American Funds - you know that fund you NEVER have to apologize for... when EDJ has had a sell on Altria for years...


They answered my question. Maybe they will now.




Please provide the link

Apr 25, 2006 4:18 pm
munytalks:

Hey Kool Aid kids, why don't you go to MSN.com and look up the article titled JUMBO Mutual Fund Starts to Tumble.... and then send a wire to your research department and see if they answer why EDJ continues to push American Funds - you know that fund you NEVER have to apologize for... when EDJ has had a sell on Altria for years...


They answered my question. Maybe they will now.




EJ on MO sale issued 2nd qtr 2003, hold issued 1st qtr 2005.


MSN article excerpt:


"Most investment advisers shop for funds among the top 25% of their categories, in the belief they are most likely to sustain above-average performance. Three of American’s biggest funds meet this standard.

But three do not, and advisers ordinarily shun such laggards because they are most likely to continue to underperform."


Wow sounds like the titanic all over again....everyone let the women and children sale their shares first there are plenty of sale tickets for everyone!


Apr 25, 2006 4:19 pm

dang mispelled sell three times...

Apr 25, 2006 4:26 pm

Let's see.... SELL in 2003.... then to a HOLD in - did you say FIRST QTR 2005- would that be after the WSJ article on Revenue Sharing came out in December 2004? I smell a BIG GREEN RAT.... with a $210 Million Dollar stash of cheese somewhere..


If memory serves me right, the reason for the sell opinion was due to mounting law suits- which are still unsettled.


Oh , and you forgot the tag line to the article " Some American Funds are great and some are not. Investors pay brokers so they don't have to make such choices themselves. They are being punished."


I suppose now Timothy Middleton is a moron.

Apr 25, 2006 4:32 pm

Sorry ComplianceJerk- can't do the link thing. I am not new to the biz- but am a Technology Nit-wit. Can anyone help me out on this request?

Apr 25, 2006 4:35 pm

I never said he was a moron, I chose to quote a fact from the article you chose to quote an opinion.  I would have to say Mr. Middleton is a journalist with a nice flair for the dramatic, which is what he gets paid to do.  Nicely done Mr. Middleton!


By the way maybe that big green rat you smell is your lunch, have you check to see if your fridge is working?

Apr 25, 2006 4:39 pm

Mutual Funds
American's funds stall as assets soar

At the huge mutual-fund family of American Funds, capital is pouring in even while the performance of some of the funds slips.

By Timothy Middleton

Success is beginning to spoil the giant mutual-fund family of American Funds.

This outstanding fund family attracted so many assets in the last two years -- $169.35 billion worth -- that the flows by themselves would have made it the sixth-largest fund complex in the nation.

As it is, American Funds is the second-largest, after Vanguard Group, according to Financial Research Corp. (FRC). It accounts for six of the 10 largest funds in the industry. But there are signs American Funds’ leadership is being overwhelmed by too many assets to manage.


It is the largest shareholder of a host of American corporations, including Altria Group (MO, news, msgs), AT&T (T, news, msgs), Lowe’s (LOW, news, msgs), Target (TGT, news, msgs), Fannie Mae (FNM, news, msgs) and BellSouth (BLS, news, msgs), making it essentially impossible to exit a damaged stock without suffering enormous damage itself.

American says it gets around the size issue by adding investment professionals at the rate of 8% a year, and by assigning only a portion of a fund’s assets to any one person. “On the American Funds Growth Fund of America A (AGTHX), there are nine portfolio counselors,” says Chuck Freadhoff, the firm’s spokesman, “so no one individual is managing a particularly huge slice of the pie.”

“American has one of the best models for handling asset growth,” says Russel Kinnel, director of fund analysis for Morningstar. “The bad news is that even they have their limits. It’s a little worrisome when you see this rate of growth.”

Apr 25, 2006 4:40 pm

whoops...here's the rest...


Signs of slippage
The situation at American is far from acute; many of its funds remain in the top tier. But others, including individual funds that each hold more assets than most mutual-fund companies, have seen their performance slip as money has flooded in.

It’s not hard to see why American has grown so large. It has little competition among broker-sold funds. In-house funds run by giant brokerage firms such as Merrill Lynch and Morgan Stanley tend to have poor records. Among independent broker-sold funds, some of the best known -- including Putnam Investments and MFS Investment Management -- were tarred in the mutual-fund scandals of 2003 and are still losing assets, according to FRC.

But it’s also not hard to see that, as American's funds have gotten bigger, some of them have faltered. When its American Funds Income Fund of America A (AMECX) had $24.56 billion of assets in 2003, it ranked among the top 14% of funds in Morningstar’s moderate-allocation category. Now, with $64.29 billion, it has tumbled to the 75th percentile.

Asset bloat at American has been nothing short of astonishing. Three years ago, Pimco Total Return A (PTTAX) was the largest mutual fund, with assets of $72.61 billion. Today it has grown 27.1% but has fallen to No. 3. American's Growth Fund of America A, which was fifth-largest then, has leap-frogged into the No. 1 spot with asset growth of 258%.


Notes: As of 3/31/2006. Excludes money-market funds. Source: Morningstar.

Among giant stock funds, the only non-American fund that is actively managed, Fidelity Contrafund (FCNTX), is acknowledging the dangers of too much growth by closing to new investors at the end of this week. Fidelity closed Fidelity Magellan (FMAGX) years ago, but not before performance deteriorated. American has never closed a fund.

Big stakes
Size by itself is much less of a problem for index funds, which account for the other two giant equity funds. Pimco Total Return A, an actively managed bond fund, has continued to beat its benchmark, the Lehman Brothers U.S. Aggregate Bond Index, for nine of the last 10 years, the exception being 2002 when it trailed by 0.06%.

American Funds, managed by Capital Research & Management, gives about 75% of a fund’s assets to a large team of managers, generalists who are free to invest as they wish. The other quarter of assets are handed over to industry analysts to invest in their best ideas.

Freadhoff says Capital Research has about 150 portfolio managers and analysts, and that they are strong-willed and independent. Still, all the largest domestic-equity funds have a strong value bias, and managers are certainly drawn to many names in common. It owns huge positions, nearing 15%, in many large corporations.

It is the largest or second-largest shareholder in nine of its top 10 positions.


Notes: Reflects percentage ownership of corporation, not fund assets. * Largest shareholder. ** Second-largest shareholder. Sources: MSN Money, Morningstar.

Safe, but not the best choice
To paraphrase something that was said of IBM (IBM, news, msgs) in the 1960s, no broker ever got fired for recommending American Funds. Their expenses are among the lowest in the industry, even after taking sales commissions into account. Their management is squeaky clean. Many American funds are top performers.

The problem is, some are not, and indeed have experienced performance falloffs in recent years, as shown by the table below.


Notes: As of 3/31/2006. Scale = 1 is best, 100 worst. Source: Morningstar.

Most investment advisers shop for funds among the top 25% of their categories, in the belief they are most likely to sustain above-average performance. Three of American’s biggest funds meet this standard.

But three do not, and advisers ordinarily shun such laggards because they are most likely to continue to underperform. That has been true in spades of American Funds Invest Co of America A (AIVSX) and American Funds Washington Mutual A (AWSHX), yet investors have flooded them with $33.36 billion and $33.59 billion, respectively, in fresh assets in the last three years.

It's possible that brokers have been putting so many of their clients in these underperforming funds because commissions paid by investors go down as more assets are placed with a single company. Brokers have told me their own compliance officers have ordered them to choose funds within the same family for this reason, even though better alternatives exist with other fund companies.

But that’s an issue of how brokers get paid, and it should be the furthest consideration from an investor’s mind. Some American Funds are great and some are not. Investors pay brokers so they don’t have to make such choices themselves. They are being punished.

At the time of publication Timothy Middleton owned or controlled the following securities mentioned in this article: Vanguard Total Stock Market Index Fund.

Apr 25, 2006 4:44 pm

Thanks Indy!


Max- I didn't say YOU called Middleton a moron- I have noticed that is a word of choice among Kool Aid lovers when someone voices an opinion not adopted in St. Louis.


Apr 25, 2006 6:33 pm

It's possible that brokers have been putting so many of their clients in these underperforming funds because commissions paid by investors go down as more assets are placed with a single company. Brokers have told me their own compliance officers have ordered them to choose funds within the same family for this reason, even though better alternatives exist with other fund companies.


This is a significant part of the article which just reinforces why we need to get away from a commission based practice.  The A share rules have created a monster and a real lack of flexibility in client's portfolios under the guise of saving the client on commissions.   Nothing like the government for being able to f**k up something in the misguided attempt to "fix" it.


Just wait until they try to "punish" big oil for market flucations in crude oil and the lack of refining capacity (which is also big government's fault).    Hang on to your hats!!! the economy is going to tank and oil will be higher than ever and gasoline scarcer than ever if we let those clowns in government, who haven't the slightest clue about economic, handle this.

Apr 25, 2006 6:46 pm
Maxstud:

EJ on MO sale issued 2nd qtr 2003, hold issued 1st qtr 2005.


UNREAL

Apr 25, 2006 11:02 pm
Maxstud:

EJ on MO sale issued 2nd qtr 2003, hold issued 1st qtr 2005.


Skrainka is a freakin' genious! 

Apr 26, 2006 12:08 am

MO will face a death from a thousand pecks and WCOM is the toll booth on the information superhighway.  At least Skrainka has decent teeth... buy that hairdo is something else. 

Apr 26, 2006 8:46 am

I am not a big American Funds fan, in the last decade or so they have
overperformed in rough markets and underperormed in up markets. 
The fact they are falling short in areas and as a firm, "feeling rather
bearish", makes me wonder whether "reversion to the mean" would tell us
NOT to abbandon them.  I am not a contrairian, but my experience
as been as soon as everyone is on the bus...get off.  You could
not get enough American Funds after the market correction in 2000
(because they held up so well) then the market turned and many of their
funds diddn't keep up (nothing new).



Is this the time to fire them or hire them? Just a thought.

Apr 26, 2006 9:38 am
exdrone:

MO will face a death from a thousand pecks ....


Well, death seems to suit MO pretty well then. Since that guy issued his sell, 2QTR, '03 (looks like he picked the absolute bottom) the stock's gone from $27/shr to $71.85/ before todays' open.



No wonder they love buy and hold so much, they can't pick stocks 

Apr 26, 2006 9:44 am

Where else could you be a "Chief Market Strategist" with that resume?

Apr 26, 2006 5:41 pm

I can think of 2 places mike.  Primerica and WMA.  The reason he's the Chief is that he's the only one without an MBA from St Louis Univ.  He actually went to a top 25 business school albeit barely at #23.  Jones has a virtual degree mill at SLU for the GP masses that come out of the greatest salesforce.  No woner they never have an original thought.