American's flagship fund sinks active management

Actively managed mutual funds recorded $8.6 billion in outflows last year; investors pulled whopping $33 billion from Growth Fund of America

Jan 16, 2012 @ 3:17 pm

If you're looking for a poster child for the struggles actively managed funds are facing today, you need look no further than the $122 billion American Funds Growth Fund of America (AGTHX).

American Funds' flagship fund, which peaked at about $202 billion in assets in 2007, saw investors withdraw more than $33 billion last year. No other fund even came close to matching that amount of outflow. In fact, no fund family matched the outflow of that one fund. Fidelity Investments' funds came closest, with net total outflows of $28 billion.

The American Funds Growth Fund of America's performance in 2011 ranked in the bottom 25th percentile of all large-cap growth funds, largely thanks to holding 18% of assets in foreign stocks, double the category's average, Morningstar Inc. mutual fund analyst Kevin McDevitt noted in a Dec. 23 report on the fund.

He wrote that despite the poor performance, the outflows still seemed to be out of proportion, given the fund's long-term track record. Its 15-year annualized returns of 8.3% still rank in the top fifth percentile among large-cap growth funds.

Unfortunately for American Funds, the outflow problem may be more than just performance driven.

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Last year, investors showed a strong shift away from actively managed funds and toward passive index funds. Even if you subtract the American Funds Growth Fund and its $33 billion of outflows from the equation, actively managed funds still trailed passive index funds by nearly $38 billion of net inflows, according to Morningstar data. Exchange-traded funds did even better, collecting $121 billion of inflows.

The shift helped The Vanguard Group Inc. take in $29.5 billion in mutual fund inflows last year, the most of any mutual fund family. American Funds lost $81.5 billion.

An American Funds representative did not return calls on Monday. Many businesses were closed for the day in commemoration of Martin Luther King, Jr.'s birthday.

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