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American Funds Says Low Fees, Manager Ownership Can Save Actively Managed Funds
FYI: As the decade-long trend continues of investors pulling money out of actively managed funds in favor or cheaper indexed strategies, American Funds is coming forward with a not-so-subtle reminder that active management still has a place in most investment portfolios. Regards, Ted http://www.investmentnews.com/article/20160318/FREE/160319927?template=printart
@Soupkitchen: That's true if you buy the A shares, however C shares have no front- load a higher expense ratio, and a deferred charge of 1% if you sell the fund within a year. Nice to see you back on the MFO Board. Regards, Ted
Thanks Ted. Being that the basic premise of the article is..."In a nutshell, it comes down to lower fund expenses and higher portfolio manager ownership of the fund.", I thought that the load should have been mentioned. Opting for the C shares would also opt the buyer out of owning a fund with lower expenses. It's good to know that American Funds makes good use of their loads to fund their infomercials. Or, are those funded by their 12B fees?
I think that it is worth pointing out that once the sales load is paid an investor has the right to do net asset value (nav) exchanges from one A share fund to another A share fund. Also, it is my understanding, the sales loads are much less on the fixed income products which can later be exchanded into a stock fund. With this, I plan on keeping my A share American Funds and I might even buy more of them.
In the past and In following a seasonal investment strategy, where one moves between stocks and bonds based upon the calendar, I have bought fixed income products during the summer, adding to the strategy position, and later, in the fall, done a nav exchange for the bond fund position to a stock fund position.
C shares are called "level load" for a reason. They charge higher expenses that are used to compensate the broker.
In addition, " American Funds Distributors pays 1% of the amount invested to dealers who sell Class C shares", which is why they'll also impose "A contingent deferred sales charge of 1% ... if Class C shares are sold within one year of purchase." That's from the typical American Funds prospectus.
However, unlike most C shares, those sold by American Funds ultimately convert to the noload F-1 class of shares.
Speaking of F-1 shares, they should be available via a fee-only advisor. (In the 90s, you could buy them without an advisor via some of the smaller discount brokerages.) Going through a fee-only advisor to gain access to noload shares isn't unique. You have to do that for DFA funds also.
Old_Skeet is correct - loads (other than level loads on C shares) don't get charged over and over, at least so long as one exchanges within the same fund family. (There used to be a measure of reciprocity, where a load family would waive loads if the purchase was an exchange from a load fund of any family, but that's nearly nonexistent now.)
That's a strong argument for keeping (not adding) money in a good load family. The load is a sunk cost. No additional load, and access to a variety of funds.
Comments
Regards,
Ted
In the past and In following a seasonal investment strategy, where one moves between stocks and bonds based upon the calendar, I have bought fixed income products during the summer, adding to the strategy position, and later, in the fall, done a nav exchange for the bond fund position to a stock fund position.
In addition, " American Funds Distributors pays 1% of the amount invested to dealers who sell Class C shares", which is why they'll also impose "A contingent deferred sales charge of 1% ... if Class C shares are sold within one year of purchase." That's from the typical American Funds prospectus.
However, unlike most C shares, those sold by American Funds ultimately convert to the noload F-1 class of shares.
Speaking of F-1 shares, they should be available via a fee-only advisor. (In the 90s, you could buy them without an advisor via some of the smaller discount brokerages.) Going through a fee-only advisor to gain access to noload shares isn't unique. You have to do that for DFA funds also.
Old_Skeet is correct - loads (other than level loads on C shares) don't get charged over and over, at least so long as one exchanges within the same fund family. (There used to be a measure of reciprocity, where a load family would waive loads if the purchase was an exchange from a load fund of any family, but that's nearly nonexistent now.)
That's a strong argument for keeping (not adding) money in a good load family. The load is a sunk cost. No additional load, and access to a variety of funds.