American Funds, long-known as an equity player, is trying to reposition itself as a more diversified asset manager with a string of funds set to launch in the next few months. But the firm, which has seen the largest outflows of any fund company so far this year, has its work cut out for it, advisers and industry observers said.
American, which is advised by Capital Research and Management Co. and sold through intermediaries, last Monday filed to launch the
American Funds Global Balanced Fund. The fund is scheduled to be available in February, said Chuck Freadhoff, a spokesman for the firm.
The filing comes just three months after
American Funds filed with the Securities and Exchange Commission to launch the
American Funds Mortgage Fund and the
American Funds Tax Exempt Fund of New York, which are scheduled to go live in December, Mr. Freadhoff said.
This will mark the first time in two years that
American Funds has launched funds. And while the firm's executives aren't trying to time the market, they do recognize the need to build American's product line beyond equities, Mr. Freadhoff said.
“We want to be known as a premier investment manager, regardless of the type of security, whether it's stock or bonds,” Mr. Freadhoff said. “I don't think we are there now.”
In actuality,
American Funds is the fifth-biggest fixed-income fund manager, with $108.57 billion in assets, according to Morningstar Inc. What's more, the firm has expanded its fixed-income research team over the past year, hiring six analysts, including a few experts from the Federal Reserve. It now has 40 fixed-income analysts, along with the 200 in its equity research team.
According to Morningstar, the fund company has seen $38.6 billion in net outflows this year. That far outstrips the $7.5 billion in outflows at Columbia Management Group, the fund firm that runs the Columbia Funds, which have seen the second largest outflows in 2010.
(Click here to see the 5 fund families with the largest outflows this year.)
Of course, American Funds' size has something to do with its sizable outflows. Even with the recent bleeding, the firm remains the second-largest fund family, with $939.66 billion in assets, trailing only the Vanguard Group.
In fact, the asset exodus is due in some part to the firm's reputation for weathering past market downturns. In 2008, however, it didn't fare nearly as well. “The problem lay with peoples' expectations,” said Don Phillips, research director at Morningstar.
Moreover, American Funds has historically been known as an equity player. When investors started fleeing equities, the firm was hit hard, said Geoff Bobroff, a mutual fund industry consultant.
“They had argued for years that having 30 funds was the ideal number,” he said. “But when the market shifted, they were caught short-suited in terms of product.”
Still, beefing up the product line will not be easy. For starters, some of its bond funds have been lackluster performers. The firm's Bond Fund of America (ABNDX), for example, has trailed its benchmark, the BarCap U.S. Aggregate Bond Index, for the past three, five and 10 years.
“It hasn't had a great track record,” said Steve Johnson, an adviser with
Raymond James Financial Services Inc. “So why should I buy the new funds, if the old fund's performance isn't that hot?”
Another challenge facing American Funds: It's launching fixed-income funds just as interest rates are beginning to rise and investors are starting to move back into equities.
“I think the move is going to be away from fixed income, not toward fixed income,” Mr. Johnson said.
An even bigger hurdle for American Funds, which may be out of its control, is that advisers in general have been moving away from using actively managed, diversified funds, Mr. Phillips said.
More advisers are adopting the “core and explore” philosophy,” by which they use index funds as their core holdings and then pick more esoteric strategies, often through exchange-traded funds, to diversify and manage market forces, he said.
“More advisers are doing this , and a group like American Funds, which offers broadly diversified funds that are designed to be big chunks of peoples' portfolios, automatically gets walled off,” he said. “The ironic thing is, when I ask advisers who are doing this what strategy in the past has offered them the most success for clients, they all say American Funds' Growth Fund of America.”
If the new funds show good returns over the next few years, observers believe that the firm can win respect both in equities and fixed income.
“I don't think they are going to market the bond funds Day One against Pimco, but they do have the fixed-income capabilities to earn the reputation of being a qualified fixed-income manager,” Mr. Phillips said. “I see them more like a
Fidelity Investments, which was known for its equity strength in the "90s, and today I think people look to them for both fixed income and equity.”
Advisers agree that if the firm can show results, they will follow it into fixed income. “I don't see why they couldn't become a major fixed-income player,” said Nancy Caton, an independent adviser. “For me, it's "show me what you can do.'”
E-mail Jessica Toonkel at [email protected].
