Which fund firm is the favorite of advisers?

Despite outflows, American Funds remains top-of-mind; 'very successful relationship'

Oct 31, 2012 @ 1:16 pm

By Jason Kephart

American Funds could be closer to a turnaround in mutual fund flows than you might think.

Despite three-plus years of outflows stemming from average to poor performance from its largest mutual funds, American Funds remains on top of advisers' minds, according to a new study by Cogent Research LLC.

“We've seen declines in American Funds flows and assets, but in terms of brand equity, they're still at the top of the list,” said Linda York, research director at Cogent.

More than 15% of advisers chose American Funds as the mutual fund company with which they feel the strongest connection, in terms of products and services, making it the top choice among all providers, according to Cogent. Franklin Resources Inc. and BlackRock Inc. rounded out the top three.

“A lot of American Funds' success had to do with their long-standing and very successful relationship with advisers,” Ms. York said.

The survey's results paint a much different picture than the last several years would suggest.

American Funds' mutual fund assets have fallen to $916 billion from its 2007 peak of $1.2 trillion, thanks to more than three straight years of outflows. Through the end of September, advisers have pulled more than $44 billion out of the funds, according to Morningstar Inc. The outflows are slowing, however. Last year, advisers pulled out $81 billion.

The cashing-out is the result of several factors, most notably relatively poor performance during the financial crisis and a shift toward rep-as-portfolio-manager that's seen an explosion in demand for low-cost, passive exchange-traded funds.

The fact that American Funds is still top-of-mind for advisers despite those two headwinds suggests that it might not take much to get mutual fund flows back in the black, Ms. York said.

“Advisers haven't forgotten about them,” she said. “If they can turn around performance, it could be good for them.”

To help boost performance, several American Funds portfolio managers recently began working with Capital Guardian LLC, its institutional money management sister company, to bolster the company's research capabilities. American Funds also has had success with its recent mutual fund launches. The American Fund Global Balanced Fund has grown to more than $3 billion since its February 2011 launch.

The American Funds Portfolio series, a family of funds of American Funds, was launched several months ago and is similarly off to a good start.

American Funds also plans to launch three bond funds in 2013, as demand for fixed-income products and yield is at an all-time high.

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