American Funds veteran sees bright future for defensive active management

Joyce Gordon reflects on how she became a conservative portfolio manager.

Joyce Gordon was 19 when Capital Group hired her in 1975 to sit outside the trading room and convert ticket orders into numeric code.

She worked her way up through the ranks, going to college at night for 11 years to earn her bachelor’s and master’s degrees.

Her baptism by fire included serving as the analyst covering savings and loan associations during the S&L crisis, which saw a third of all S&Ls become insolvent. From there, she shifted to covering the broader banking industry in 1989, when bank stocks were suffering annual declines of nearly 70%.

Ms. Gordon recalls sifting through the wreckage to identify the banks most at risk and buying 10% of every bank not on the list.

“The banking industry was trading like the whole industry was going out of business, and I knew that wasn’t going to happen,” she said. “We did extremely well off the bottom.”

Ms. Gordon credits those early experiences with helping to develop her portfolio management style.

“It was a very painful time period, and that really taught me to be defensive and really try to protect our shareholders,” she said.

Ms. Gordon is lead manager or co-manager on four American Funds mutual funds with $348 billion in combined assets.

Our conversation focused primarily on the $55 billion American Funds American Mutual Fund (AMFCX), a fund she has been managing since 2006.

Jeff Benjamin: What type of investor would be interested in this type of fund?

Joyce Gordon: It’s a fund that participates in the market and does so with lower volatility, so we really try to protect shareholders on the down side. It’s not necessarily just for an older person, but that would be someone you would think about. Someone who doesn’t want to lose money because they don’t have as much time to earn it all back.

It’s the most defensive growth and income fund that we have.

JB: You are the lead manager among seven portfolio managers working on this fund. How do you manage your slice of the portfolio?

JG: My strategy has always been to be more defensive. It comes from the industries I covered as an analyst; when things blew up, it got very ugly. So my overall investment style is to be more defensive, so this fund is perfect for me.

I like to find companies where management is doing something to help the company besides what’s going on in the industry. Maybe cutting costs or reorganizing or doing something that’s beneficial to the company in the long term.

I also like to find companies where management is really pro-shareholder, where they are willing to pay out a decent dividend and grow the dividend over time.

JB: This fund’s standard deviation suggests risks below both the S&P 500 and the category average. What are your risk controls?

JG: We know we’re very long into this recovery, and it’s been a very long bull market run. So the longer we get into it, the more we think a correction is coming at some point. We do a lot of analysis on how the stocks behaved in prior downturns.

There have been 12 downturns of 10% or more since 1990. We look at every company in the S&P 500 to see how they’ve done in those downturns, and we can try to see which companies hold up better. A lot of us [at Capital Group] are focused on that at this moment.

JB: The fund has a very low 16% annual turnover rate. What are your buy and sell criteria?

JG: For a company to be purchased, it has to be rated investment grade. We’re looking for companies with strong balance sheets and above-average yield. The low turnover is a by-product of all the managers in the fund being very defensive and not chasing momentum stocks.

JB: The fund has lagged the S&P in seven of the last 10 years. Is it important to beat the benchmark?

JG: I would be nervous if we were beating the benchmark in an up market because we’re then likely not going to protect in a down market.

It’s okay with me that we lag a bit on the way up, but we really need to protect on the way down, and we did that in the fourth quarter of last year [when the S&P declined by 13.5% and the fund declined by 8.2%].

JB: What’s the biggest challenge of managing a large-cap stock fund in a bull market that has favored passive investing?

JG: It means the future is bright because at some point we’re going to get that market pullback and individual stock picking is going to matter a lot more than it has over the last 10 years.

JB: Where are you seeing investment opportunities now?

JG: At some point, we’re going to have a recession. I don’t know how soon it will come, but I try to think about companies that have revenues that are somewhat protected in a downturn. I’m thinking about maybe defense contractors and companies like that that do well even if the economy is weak.

JB: Over your four-plus decades in the asset management industry, what kinds of changes have you seen and experienced as a woman working in what is still a mostly male industry?

JG: Never in my career did I feel held back by being a woman. I never even thought it was an issue, plus or minus.

But I think it’s probably gotten a bit easier over the last decade for women.

Not only do we have efforts to try to identify good women who would be able to do this, but we’ve adopted a lot of flexibility into the work schedule. We know people have to pick up kids and do things, so if people get their work done, it’s not an issue. I just think the whole system has gotten much simpler.

JB: You are the lead or co-manager of four different funds. Do you personally invest in those funds?

JG: Yes, I do. I have over a million dollars in each of the four funds I manage.

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