| Sept 18
Sept 18 Capital Group Cos Chairman James
Rothenberg outlined a new effort on Wednesday to promote its
American Funds lineup, left sidelined by client withdrawals even
as investors edge back to other actively managed equity mutual
With investors poised to put the financial crisis behind
them, no fund family has as much potentially to gain from the
shift as American Funds, with roughly $1 trillion under
But it posted an investor cash net outflow of $33.4 billion
for the 12 months ended Aug. 31, according to research firm
Morningstar, including $11.6 billion in the first eight months
of 2013, quite a come-down for the industry's third-largest
company, excluding money funds and other vehicles.
Conversely, the trend to passive funds has boosted flows to
companies such as indexer Vanguard Group of Pennsylvania, the
largest mutual fund firm by Morningstar's measures with $1.7
trillion under management.
Rothenberg, in a rare interview, said on Wednesday that the
pace of withdrawals has slowed lately, but he also described a
raft of changes at the firm aimed at promoting sales. For one,
Capital Group staff is now tasked with reaching out more to
gatekeepers such as consultants who pick funds for retirement
He also said the Los Angeles company has changed job
descriptions for many of the people in its 600-person
distribution business so that they now interact more with
companies such as insurers or fee-only financial firms that can
help drive sales.
A chief goal is to counter what he called a widespread
belief that investors no longer need actively managed equity
funds, which make up 85 percent of American Funds assets. Lured
by lower fees and competitive returns, investors have steadily
added money to passive index funds and exchange-traded funds for
years, a troubling trend for Rothenberg.
"That's a piece that both frustrates us and bothers us, and
we think deprives people of an opportunity to earn more money
over time," Rothenberg said.
Overall, actively managed equity funds have shown a
resurgence of interest during the recent period of reduced
market volatility. The sixth months ended June 30 marked the
first such period since 2007 when investors added money to
actively managed equity funds, about $50 billion, according to
Thomson Reuters' Lipper unit.
Meanwhile, passively managed equity funds and
exchange-traded equity funds had a positive net inflow during
nearly the whole span.
Still, it is too soon to declare a lasting return of flows
to actively managed equity funds, said Lipper Senior Research
Analyst Jeff Tjornehoj. Of the positive flows lately, Tjornehoj
said, "this is either an interesting phenomenon or an inflection
point, we don't know which."
The future of active management is a central question both
for American Funds and smaller asset managers with outflows
including Janus Capital Group and Legg Mason Inc.
Rothenberg acknowledged troubles, such as poor records for
its $123 billion Growth Fund of America in 2010 and
2011, years when the fund beat only 23 percent and 27 percent of
But it has come back since then, reflecting what Rothenberg
called strengths in areas including research. It beat 93 percent
of competitors in 2012 and was beating 64 percent of competitors
this year through Aug. 31, according to Morningstar.
American Funds also has faced challenges that include a lack
of well-known bond funds. Its problems include "a little bit of
everything," said Morningstar analyst Janet Yang.
While academics may be correct about the advantages of
passive funds on average, the story doesn't fit American's
strong long-term track record, Rothenberg said.
A Capital Group study found that American Funds led their
indexes 67 percent of the time during every five-year period
from 1933 to 2012, for instance covering "virtually the entire
history of the mutual fund industry," according to the report.