American Funds makes push to increase transparency

Firm will share how portfolios are managed but won't reveal performance and holdings

By Jason Kephart

Sep 19, 2013 @ 2:56 pm (Updated 10:21 am) EST


In a bid to win back investors, American Funds is increasing the transparency around how its mutual funds are managed but it won't be going as far as revealing individual manager performance and holdings.

Each American Fund is run by a team of portfolio managers, but each manager runs his or her own sleeve independently. For example, the $123 billion American Funds Growth Fund of America (AGTHX) has 12 managers who are each responsible for their own portion of the fund. Details about the individual managers, however, has been scarce, the company is in the process of changing that.

For the first time, the Los Angeles-based company is preparing reports that will detail the decision making process behind building the team that manages each mutual fund, including notes on each managers' investment style, strengths, and weaknesses, spokesman Chuck Freadhoff said.

“It's something that hasn't been fully understood before,” he said. “We haven't explained it well.”

The reports won't go as far as revealing each manager's performance or portfolio holdings, though, because Mr. Freadhoff said that information isn't actionable.

“It may be interesting, but you can't invest in a single manager,” he said. “You're investing in the entire fund.”

Some financial advisers see the move as encouraging.

“If they're willing to share more information and more insight into their funds I don't see a downside to that,” said Melissa Hammel, managing member of Hammel Finanical Advisory Group LLC. Ms. Hammel has clients invested in several American Funds, including the $32 billion American Funds AMCAP Fund (AMCPX).

Jim Johnson, partner at Lighthouse Financial Planning LLC, has had as much as half his clients' assets in American Funds, but only has them in the firm's bond funds today.

“Anybody who has been through one of their meetings knows it's pretty clear how they do what they do,” he said. “If they have a way to communicate that without people having to go to their headquarters, I think it's a great idea.”

The detailed fund manager reports are just one step American Funds, which has suffered withdrawals of $242 billion since 2007, is taking to increase transparency. The firm’s assets total $993 billion, down from $1.15 trillion in 2007.

The company has already begun making portfolio holdings available 15 days after months' end and offering quarterly attribution analysis, reports that show advisers which holdings have been added, or subtracted, from an individual fund's performance that quarter.

In addition, advisers can expect to start seeing more American Funds portfolio managers at industry conferences, in the media, and appearing on financial TV networks.

“We know we need to communicate as broadly as we can,” Mr. Freadhoff said.

American Funds kicked off its increased outreach to advisers last year with the launch of its “The Long View” reports, which shared the company's insights into trends affecting the economy.

At the heart of the transparency efforts are registered investment advisers. American Funds are predominately sold through brokers, 64% of its fund assets are in load-rich A-shares, but the company is making a big push to court RIAs, who are mainly fee-based.

“RIAs like to interact differently than the traditional transaction-based broker,” Mr. Freadhoff said. “They ask for more detailed information. They need to know what you think and what your views are.”

The effort is paying off so far, in terms of recognition, if not money flows.

“Several years ago, anyone outside of the small RIA team [at American Funds] didn't seem to know what an RIA was,” Mr. Johnson said. “That's certainly not the case today. I'm absolutely seeing progress.”

American Funds has approximately $92 billion, or 9% of total fund assets, in its F-share classes, which don't have load fees, up from $72 billion, or 7% of total fund assets, in 2008.

Still, investors have pulled $11.5 billion from the funds this year even as the equity markets have rallied and performance across the American Funds lineup has improved.

The American Growth Fund of America, for example, outperformed the S&P 500 by 400 basis points in 2012 and its 23.87% return year-to-date through Sept. 18 tops the S&P 500 as well. Its 10-year annualized returns are almost 400 basis points better than the S&P 500 and rank it among the top 10% of large-cap mutual funds, according to Morningstar.

But the fund's underperformance in 2008, when it fell 39% versus the S&P 500's 37% drop, and in 2011, still drag down its three- and five-year annualized returns.

  @IN Wire

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