American Funds to chop fees, change management on five VA funds

Capital Group is overhauling five of its American Funds core variable annuity mutual funds, including reducing the funds' fees by an average of 35%, the company announced today.

The changes, which will take effect May 1, represent the second time in a year that the company has significantly altered some of its insurance-series funds to make them match their better-known retail mutual fund counterparts. In addition to fee reductions, the five funds will have new names, management teams and investment objectives.

“We conducted an in-depth analysis of our offerings,” said Stephen Joyce, senior vice president of the company’s insurance business. As a result, the company found that “we can do more to reduce the complexity of VA investing,” Joyce said.

That means providing insurance-fund versions of the shop’s best-known products, he said. For example, advisers who want to access the American Funds Washington Mutual Investors Fund have had to select the firm’s Insurance Series Blue Chip Income & Growth Fund, which is the most similar VA fund, he noted. As of May 1, that insurance series fund will be renamed the American Funds Insurance Series Washington Mutual Investors Fund as part of an overhaul that will make it otherwise identical to the retail mutual fund.

As a result, fees will decline from 43 basis points to 27 bps, according to the company. Part of the reason that fee reduction is possible is through economies of scale — the $9.6 billion insurance fund is now aligned with the $136.6 billion retail fund, Joyce said.

“We felt we could further increase the value of our offerings to advisers and insurers … as well as the existing policyholders,” he said.

Similarly, the $2.2 billion American Funds Insurance Series Global Growth & Income Fund will be renamed the Capital World Growth and Income Fund, to match up with the $110.3 billion non-VA fund. Fees on that product will drop from 66 bps to 43 bps.

The $11.4 billion insurance Bond Fund will become The Bond Fund of America, to match up with the $69.2 billion publicly available mutual fund of that name. Fees within that product will drop from 40 bps to 21 bps.

The insurance High-Income Bond Fund will become the American High-Income Trust, and fees will go from 51 bps to 33 bps.

Lastly, the insurance U.S. Government/AAA-Rated Securities Fund will become the U.S. Government Securities Fund, with costs falling from 38 bps to 23 bps.

The forthcoming changes, along with those implemented last year, will save VA contract holders about $59 million in fees annually, according to the firm. The affected products will go from being ranked in the lowest Morningstar quartile by fees to the lowest decile, the company noted.

A year ago, Capital Group made similar changes to four of its core VA funds, with those alterations going into effect last May. With the new round of VA fund changes, nine of the firm’s 18 core insurance series funds will match the bigger, well-known retail mutual fund versions.

Regarding the other nine core VA funds that have not been changed, “We constantly evaluate our offerings," Joyce said. "We’ll see what comes out of that.”