American Funds is top fund family for indie B-Ds

Despite billion of dollars in outflows, American Funds is the most popular fund group among independent broker-dealers, according to a survey conducted by InvestmentNews.

Ninety-six of 99 broker-dealers surveyed said that American Funds was one of the three fund groups that their financial advisers sold or recommended the most to clients over the past year. In other surveys, advisers have consistently ranked American Funds highly.

Seventy-five firms named Franklin Templeton Investments, putting the firm in second place. OppenheimerFunds Inc. was a distant third, named by 31 firms.

Even with loyalty among brokers, American Funds saw $50 billion in net outflows last year, according to Fuse Research Network LLC, using data from Morningstar Inc. (See story, Page 35.) Even so, American Funds still has $857 billion in assets under management, said Neil Bathon, founder of Fuse Research.

“The firm’s gross sales probably had it on the top of any broker-sold product list,” he said.

Like many of its peers, American Funds, which is owned by Capital Research and Management Co., saw some of its funds underperform when the market tanked in 2008.

In some cases, that has continued even as the economy has recovered. For example, the Growth Fund of America, Capital Income Builder and Washington Mutual Investor funds have trailed their peers during the past year, according to Morningstar.

SCANDAL-FREE

But in the long term, American Funds’ performance has been solid and the company’s reputation has remained intact, observers said.

“While they have had some disappointing performance, none of their funds have blown up and they haven’t been touched by any scandals, which isn’t true of many load shops,” said Russel Kinnel, director of research at Morningstar.

As of Dec. 31, all of American Funds’ 15 equity funds with 10-year track records had positive returns for that period, said Chuck Freadhoff, a spokesman for Capital Research.

That long-term performance is why advisers such as Steve Johnson, a financial adviser with Raymond James Financial Services Inc., has $35 million with the firm.

“The history of the fund performance, the stability of the organization and the multiple-manager approach are all reasons why I like them,” he said.

Franklin Templeton is another broker favorite, largely because of its strength in fixed income and the international areas, sectors that were very popular last year.

Specifically, the firm’s $47 billion Templeton Global Bond Fund outperformed its peers for the past one-, three-, five- and 10-year periods, according to Morningstar.

“That’s the bond fund we have in every account,” Mr. Johnson said.

Although OppenheimerFunds came in a distant third in the survey, observers said that just being toward the top of the list says a lot about how far the fund company has come in the past couple of years.

After the financial meltdown in 2008, OppenheimerFunds got hit with lawsuits from Illinois and Oregon over allegations of how the firm managed the states’ Section 529 college savings plans. The states claimed that it turned its Core Bond Fund into a hedge-fund-like investment that took speculative risks.

OppenheimerFunds settled both cases. Since then, it has reorganized its marketing department and tapped Philipp Hensler, former head of DWS Investments Distributors, to head up distribution.

“Oppenheimer has worked very hard in the past year and a half to turn things around, and that’s really resonating with financial advisers,” said Steven Miyao, chief executive of kasina LLC.

Although it isn’t surprising that Pacific Investment Management Co. LLC and Fidelity Investments came in fourth and fifth place, respectively, there were a couple of unexpected names among the top 15.

BLACKROCK GAINS

Six firms surveyed named BlackRock Inc. as a top mutual fund family. The firm, which primarily has been known in the institutional arena, clearly has made headway among independent broker-dealers, experts said.

BlackRock, which bought Merrill Lynch Investment Managers in 2006, was popular among Merrill brokers, but the fact that the firm showed up in the survey says a lot about the firm’s sales efforts targeting the independent channel, Mr. Miyao said. Perhaps the biggest surprise was that Putnam Investments made the list. Although just three firms named Putnam as a fund family that it most recommended or was sold by its advisers, many observers said that they didn’t expect Putnam to show up at all.

Some of Putnam’s absolute-return funds and equity funds have seen an uptick in performance, but the firm is still fighting to get out from underneath its involvement in the 2003 market-timing scandals, Mr. Kinnel said.

“The fact that Putnam has made the list is remarkable,” Mr. Bathon said. “Some of their funds have started to come back.”

“This says a lot about how far we have come over the two and half years since I joined Putnam,” said Robert Reynolds, CEO of Putnam.

Not only have all the executives involved with the market-timing scandals left the firm, but Putnam has turned around its performance, Mr. Reynolds said.

For instance, the firm’s Voyager Fund beat its peers for the past one-, three-, five- and 10-year periods. Similarly, many of the firm’s fixed-income funds are in the top 10% of their peer groups, Mr. Reynolds said.

E-mail Jessica Toonkel at [email protected].

Related Topics: American Funds Distributors, Franklin Templeton Investments, OppenheimerFunds Inc.