Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
A plan to court advisers and launch an advertising campaign does not address the fundamental problem with AF, which is their fee practice.
They have 650 funds but only 58 are unique, which means each fund averages 11 or so share classes. Why?
Typically, Class A charges a 5.75% front load, which gets buried in fine print when these folks show up to hawk their funds through automatic investment plans at unions, professional societies, etc.
If you're aware enough to ask about the load, you can get the same fund for an ER of say 1.6, including a 1% 12b-1 fee.
Here's an example, one fund with 16 share classes:
The R6 class? Probably only available to institutional houses or other sponsoring clients.
To me, AF uses these multiple classes to shuffle high fees and charges, often on funds with significant AUM, like $60B with American Balanced. What's 5.75% of $60B? $3.5B.
It also disappoints me that M* covers many of the AF funds, rates them highly, and never seems to mention in their write-ups that they charge loads.
Unfortunately, I think the fee practice at AF represents a relic of a time pre-Vanguard, pre-ETFs, even pre-internet. I see them as a behemoth institution, which will likely continue to lose assets as investors become more aware of less expensive, no-load, quality alternatives.
Finding a comparable low-cost, no-load Vanguard fund that outperforms CAIBX is an easy do...
Vanguard Wellington has outperformed CAIBX over the last 1, 3, 5, and 10 year periods.
So has FPACX, SEQUX, MAPOX.
Look, if you are getting CAIBX at 0.63 ER with no-load, you and I are in-g. But most folks are paying 5.75% front load plus the 0.63 ER...on a fund that has $80B AUM. Its investors should be up in arms!
Capital Income Builder too has 16 share classes...
If AF was charging 0.63 ER with no load on funds like Capital Income Builder, I would become its biggest fan. But it's not. Instead, this fund alone has skimmed $4.5B from its investors before earning them a dime. Plus $500M per year in fees whether it makes money for them or not.
All up, AF open end mutual funds have $1T AUM, round numbers. Apply similar fee practice, it means they have skimmed $55B from its investors' deposits plus $6B annually...win or lose. AF is bigger than Vegas!
AF should enjoy while it can, because it will not last.
Vwelx is not a good comparison to Caibx unless you are talking total return. That would be unreasonable because Caibx primary objective is growing income as per the prospectus.
Reply to @Investor: That's your opinion and you are entitled to it. I do not agree with the premise that selling shares is equivalent to receiving dividend income.
Funny...selling shares can be the best way to generate income.
I own a GNMA fund for the purpose of quarterly distributions for income. I accumulate shares monthly through the year as a result of reinvesting monthly dividends. I sell shares quaterly to provide income. It just so happened that my fund share price has slowly dropped over the year. So at tax time, I had a reported loss on shares I sold that provided income to me.
My downdown (selling shares for income) and drop in share price was less than my dividend yield (reinvestment as additional shares) so my fund balance was actually higher at the end of the year...yet selling shares provided me with income as well as a tax loss due to share price depreciation. Seem like a win / win to me and a great way to provide income as a resut of selling shares.
I agree with Desota in this case. The purpose of CAIBX is to grow the income earned per share preferably without destruction of the price per share. If you are selling shares and the price of those shares are deteriorating as in Bee's example you are losing money because the original price that you paid for them was higher. Furthermore by selling shares you are in effect selling your seed corn i.e. the original crop you planted to grow more corn (money).
On the other hand total return is important but these two funds do not compete directly in the same space as CAIBX has a significantly larger foreign stock component. Different strokes maybe.
Ah, the seed corn analogy, coined by the infamous Taylor of fundalarm fame. FWIW, it is possible to buy shares in CAIBX by first buying shares in one of American's bond funds that charges a 2.5% load. Then, simply convert those shares into CAIBX. While not load free, 2.5% beats 5.75%.
Reply to @Soupkitchen: Been with American Funds for some 30 years. Not altogether sure they will let you get away with that. Have you actually done it? (If so, good for you!)
OJ, I haven't tried it, but I did call up AF and asked them if it could be done, and they mentioned that it could. This was a few years ago, so anybody thinking of trying it should ask them.
Reply to @Soupkitchen: Taylor brings back a lot of memories from the old Fundalarm Board before he got banned. What's interesting before Taylor got on the CAIBX banddwagon, he thought ANWPX was the greatest thing since sliced bread. Regards, Ted
Comments
They have 650 funds but only 58 are unique, which means each fund averages 11 or so share classes. Why?
Typically, Class A charges a 5.75% front load, which gets buried in fine print when these folks show up to hawk their funds through automatic investment plans at unions, professional societies, etc.
If you're aware enough to ask about the load, you can get the same fund for an ER of say 1.6, including a 1% 12b-1 fee.
Here's an example, one fund with 16 share classes:
The R6 class? Probably only available to institutional houses or other sponsoring clients.
To me, AF uses these multiple classes to shuffle high fees and charges, often on funds with significant AUM, like $60B with American Balanced. What's 5.75% of $60B? $3.5B.
It also disappoints me that M* covers many of the AF funds, rates them highly, and never seems to mention in their write-ups that they charge loads.
Unfortunately, I think the fee practice at AF represents a relic of a time pre-Vanguard, pre-ETFs, even pre-internet. I see them as a behemoth institution, which will likely continue to lose assets as investors become more aware of less expensive, no-load, quality alternatives.
Actually, don't bother because there is none.
Finding a comparable low-cost, no-load Vanguard fund that outperforms CAIBX is an easy do...
Vanguard Wellington has outperformed CAIBX over the last 1, 3, 5, and 10 year periods.
So has FPACX, SEQUX, MAPOX.
Look, if you are getting CAIBX at 0.63 ER with no-load, you and I are in-g. But most folks are paying 5.75% front load plus the 0.63 ER...on a fund that has $80B AUM. Its investors should be up in arms!
Capital Income Builder too has 16 share classes...
If AF was charging 0.63 ER with no load on funds like Capital Income Builder, I would become its biggest fan. But it's not. Instead, this fund alone has skimmed $4.5B from its investors before earning them a dime. Plus $500M per year in fees whether it makes money for them or not.
All up, AF open end mutual funds have $1T AUM, round numbers. Apply similar fee practice, it means they have skimmed $55B from its investors' deposits plus $6B annually...win or lose. AF is bigger than Vegas!
AF should enjoy while it can, because it will not last.
That would be unreasonable because Caibx primary objective is growing income
as per the prospectus.
Funny...selling shares can be the best way to generate income.
I own a GNMA fund for the purpose of quarterly distributions for income. I accumulate shares monthly through the year as a result of reinvesting monthly dividends. I sell shares quaterly to provide income. It just so happened that my fund share price has slowly dropped over the year. So at tax time, I had a reported loss on shares I sold that provided income to me.
My downdown (selling shares for income) and drop in share price was less than my dividend yield (reinvestment as additional shares) so my fund balance was actually higher at the end of the year...yet selling shares provided me with income as well as a tax loss due to share price depreciation. Seem like a win / win to me and a great way to provide income as a resut of selling shares.
On the other hand total return is important but these two funds do not compete directly in the same space as CAIBX has a significantly larger foreign stock component. Different strokes maybe.
Regards,
Ted