American bullish on bonds

With the Great Bond-Buying Market going strong for the fourth straight year, American Funds will launch three bond funds next year. The proposed funds will cover global investment-grade credit, global high yield and Treasury inflation-protected securities. Normally, a company's planning new bond funds while investors are busy pouring unprecedented amounts of new cash into the asset class wouldn't raise many eyebrows. American, however, prides itself on its selectivity. From 2000 to 2010, for example, the mutual fund arm of The Capital Group Cos. Inc. launched just three funds, and those were in out-of-favor categories. “They've never been one to launch what's trendy,” said Kevin McDevitt, a mutual fund analyst at Morningstar Inc. “It's very out of character for them.”

POLAR OPPOSITES

The macro backdrop isn't only about bond funds, which have more than doubled their assets to more than $2 trillion since 2008. Actively managed equity funds, the bread and butter at American Funds, have been bond funds' polar opposites, at least in terms of investor activity. Through August, assets in American's equity funds were down to $518 billion, from $619 billion in 2009, even as various stock market measures more than doubled. Net outflows at the fund firm totaled more than $300 billion over the same time span. “You have to wonder, with such consistent outflows over three-plus years, if it's not, in some way, a response,” Mr. McDevitt said. American Funds spokesman Chuck Freadhoff said that it is easy to draw the connection between the outflows and the planned bond funds, but that isn't the reason that the funds are being prepped. “It's not a matter of market timing. We expect these funds to be around for a very long time,” Mr. Freadhoff said. “We think that there is a place for bonds in everyone's portfolio. Whether in a bull market for equities or not, a well-diversified portfolio includes bonds,” Mr. Freadhoff said. “Our bond guys have long thought we needed a more complete lineup,” he said. American will have 10 bond funds after the new funds are launched, five shy of its equity lineup. The existing bond funds, which have a total of $84 billion in assets, had $603 million of inflows year-to-date through Aug. 31, compared with $38.8 billion in outflows in the stock funds. [email protected] Twitter: @jasonkephart