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American Funds flows on track to break even - executive
October 9, 2014 / 6:27 AM / in 3 years

American Funds flows on track to break even - executive

BOSTON (Reuters) - The stock-heavy American Funds family is on track to report its first year without big investor withdrawals since 2008, a top company executive said as improved performance helped bring money to its actively managed products.

“Year-to-date our flows are about even, and if trends continue we expect to end the year about even,” said Timothy Armour, who chairs the management committee of American Funds parent Capital Group Companies, in a telephone interview on Wednesday.

An end to the outflows would mark an important milestone for the No. 3 mutual fund company, which has lost ground to Vanguard Group Inc and other companies whose low-fee indexed products gained a new following after the financial crisis.

Armour’s forecast matches trends so far in 2014. Through August the company had net customer deposits of $5.1 billion, according to Lipper, a Thomson Reuters, unit, compared with net customer withdrawals of $16.1 billion in 2013. Both figures are a pittance compared with American Funds’ $1.2 trillion in fund assets. Closely-held American Funds says it manages $1.4 trillion across all products.

Armour said the company’s flow picture has improved with the performance of some mutual funds. For instance, after posting mixed returns in 2009 and 2010, the $95 billion Capital Income Builder fund, which Armour co-manages, has come back. It returned 11.98 percent for the 36-months ended Oct. 7, according to Morningstar, better than 74 percent of its peers.

BALANCED VIEW

With its numbers improving, American Funds has been pressing the case for active management with intermediaries who sell its products.

“We’re trying to get a more balanced view out there in the market about active versus passive,” Armour said. “We’re trying to make the discussion more well-rounded.”

The company now has 223 sales employees who visit financial advisers, up from 159 in 2009, a spokesman said. It also has boosted to 34 the number of employees who work to bring its funds to retirement plans, up from 18 in 2009.

In addition, American Funds plans to release a study on Thursday finding that actively managed large-cap funds with low expense ratios and managers who had put in relatively high amounts of their own money, beat indexes more often than other active funds.

According to the study an investor who put $100,000 into a stock portfolio made up of such funds in 1994 would have grown it to $551,409 by 2013 - 31 percent more than if the money were in exchange-traded funds.

Other studies have come to similar conclusions. Securities rules require portfolio managers to disclose roughly how much of their own funds they own. American Funds does not require its managers to invest in their own funds.

But Steve Deschenes, the company’s head of product development, said 97 percent of its assets are managed by individuals at the firm who have marked the highest level of ownership shown on disclosure forms: $1 million or more.

Reporting by Ross Kerber; Editing by Bernard Orr

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