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M*: In an Industry of Sprinters, American Funds Demonstrates Its Endurance
Really hope M* is not being paid by American Funds to generate this grade. Perhaps another example of how M* has lost touch with everyday investors and the meaning of shareholder friendly.
American Funds is a relentless asset gathering fund house that preys on well meaning but inexperienced investors - selling them indefensible front loaded funds.
Nearly every American Fund carries a 5.75% front load. Nearly every fund carries an embedded 12b-1 fee.
So, round numbers, on their three quarters of a trillion in AUM, they've skimmed $35B off the top. Then they take another $6B annually, based on their average ER of 0.75. (Higher if you own a share class that did not have front-load.)
Charles, while I think that your above remarks are correct, I believe that because they fail to provide historical context they are somewhat unfair to American Funds. I've discussed our experience with American Funds in the past, and here are some extracts concerning our personal experience:
We have used the American Fund family for over thirty years, and are generally quite satisfied with the results. When we were very young and beginning to invest it soon became obvious that we were completely unequipped for this discipline. We were fortunate to find an honest adviser, and with American Funds we helped put his kids through college on that 4.5% up-front load. He certainly justified his cut from the load that we paid at that time, and also been a great help to us in a number of ways over the years. The funds that he put us into did what he said they would, and did and do in fact have very reasonable ERs.
We are still quite friendly, and while I have self-directed our fund trades and deployment for many years now he still keeps an eye on things as a double-check to ensure that I don't do anything really silly. Recently, for example, he kept on top of and handled the paperwork for the automatic IRA drawdowns required as my wife and I have reached the IRS threshold ages. Once in a while American Funds will screw up some detail (what to do with those IRA drawdowns, for example) and he is really helpful in taking care of that kind of stuff, keeping me from having to deal with these sorts of issues. Could have done a whole lot worse, and in fact did do a whole lot worse before settling in with American Funds.
Using the American Funds experience as a template, we gradually extended our investments to no-load funds with American Century, continually comparing the relative performance. For the most part, we used American Funds for IRAs, and AC for non-IRA. Then we discovered FundAlarm, with it's great ability to compare equity fund performance, both against other funds and against a benchmark. We did this about once a month, and gradually became confident enough to move into and out of different funds based upon their performance. Presently we also use Schwab (mostly because they have an office a block away) as an independent broker to mange a wide range of funds.
We have learned many things from experience, and much, much more from the FundAlarm and MFO contributors (that would be you guys). We have been very fortunate, and done quite well overall. But there is no getting around the fact that one decent adviser, putting us into American funds, started us down that long investment road. Stodgy but safe. That original 4.5% load was well worth it for us.
As I've said here a couple of times before I wouldn't recommend American to anyone starting out these days. Times have changed greatly with respect to decent sources of investment information (MFO itself being a great example) and I think that it's perfectly possible to do pretty well on your own.
Reply to @Old_Joe: Thanks Joe. Good comments, understand.
The Janet Yang M* article pointed out some good characteristics of Capital Research and Management Company. But it never once mentioned the arcane pricing policies, front-loads, and generally higher fees (based on AUM) that American Funds continues to impose on its shareholders.
You are absolutely right that years ago, circa 1960-70s, front loads were common. But simply not the case today.
I guess I just can't get out of my head the image of a young school teacher, opening up her first American Funds' statement showing that she's lost nearly 6% of her savings. Again, not having read the fine print in the brochure that her principal handed out to everybody at the first teachers meeting. But she proudly signed-up for weekly deposits, so every week, American Funds skims 5.75% off the top.
This practice goes on across the nation to thousands of young or inexperienced investors not knowing the expenses they are paying. There are much better alternatives today.
In this case, I think M* helps perpetuate an indefensible practice by the mutual fund industry, which borderlines on shareholder abuse.
Take the strengths American Funds has today, eliminate the front-loads, eliminate the 12b-1 fees, streamline their share class structure, reduce ERs commensurate with the enormous AUM, and then they will truly be deserving of the high stewardship grade for a future generation of investors.
Reply to @Charles: Yes, there's really no disagreement here. I also believe that the load is both excessive and unjustified in the present investing environment. BTW, we did rather well with American Century and other investments, so that when we returned to American Funds we were able to qualify for no-load A shares. We haven't paid a load there in the last 25 years or so.
I'll add this also: when, in 2008, our American Funds balance dropped below the no-load minimum, they did NOT charge any load as we bought, sold, or readjusted our positions. I thought that that showed a bit of class.
In retirement plans typically you will see R class of American Funds. R6 is the best. Others are progressively more expensive depending on how much the company paying or not paying for that plan.
I think A shares are either load waived in a retirement plan but it is not common to see this share class there.
A class is really for advisor (or broker sales) channel. American funds have been so successful in the past as they has resasonably well performing funds among other load families and they left money to the advisors via those front loads. Now people are moving to low cost investments and advisors are moving to AUM percentage model that old scheme has become a liability. They lost so much assets even if their funds actually performed reasonably well.
Reply to @Investor: R class is typically available in tax-deferred accounts, and it has the lowest expense ratio with sale load. The rest loaded funds are not worthwhile.
Reply to @Investor: That's what we have, American New World, class R6, RNWGX, with ER 0.66%. It is a basically an international allocation fund with 1/3 developed market, 1/3 emerging market, and 1/3 international bond. Low volatility and respectable return over the past the entire market cycle (over 10 years) we invested.
Reply to @Old_Joe: Please tell me you own them in 401k/institutional accounts. My one problem with M* has been recommending load funds to individual investors without any qualifications.
This has nothing to do with how good American Fund managers are, or the amount they give to charity (which I don't think they do). This is about what is right for the individual investor. M* does not leave any opportunity to give a b****** to American funds.
Comments
Really hope M* is not being paid by American Funds to generate this grade. Perhaps another example of how M* has lost touch with everyday investors and the meaning of shareholder friendly.
American Funds is a relentless asset gathering fund house that preys on well meaning but inexperienced investors - selling them indefensible front loaded funds.
Nearly every American Fund carries a 5.75% front load. Nearly every fund carries an embedded 12b-1 fee.
So, round numbers, on their three quarters of a trillion in AUM, they've skimmed $35B off the top. Then they take another $6B annually, based on their average ER of 0.75. (Higher if you own a share class that did not have front-load.)
Truly disappointing.
We have used the American Fund family for over thirty years, and are generally quite satisfied with the results. When we were very young and beginning to invest it soon became obvious that we were completely unequipped for this discipline. We were fortunate to find an honest adviser, and with American Funds we helped put his kids through college on that 4.5% up-front load. He certainly justified his cut from the load that we paid at that time, and also been a great help to us in a number of ways over the years. The funds that he put us into did what he said they would, and did and do in fact have very reasonable ERs.
We are still quite friendly, and while I have self-directed our fund trades and deployment for many years now he still keeps an eye on things as a double-check to ensure that I don't do anything really silly. Recently, for example, he kept on top of and handled the paperwork for the automatic IRA drawdowns required as my wife and I have reached the IRS threshold ages. Once in a while American Funds will screw up some detail (what to do with those IRA drawdowns, for example) and he is really helpful in taking care of that kind of stuff, keeping me from having to deal with these sorts of issues. Could have done a whole lot worse, and in fact did do a whole lot worse before settling in with American Funds.
Using the American Funds experience as a template, we gradually extended our investments to no-load funds with American Century, continually comparing the relative performance. For the most part, we used American Funds for IRAs, and AC for non-IRA. Then we discovered FundAlarm, with it's great ability to compare equity fund performance, both against other funds and against a benchmark. We did this about once a month, and gradually became confident enough to move into and out of different funds based upon their performance. Presently we also use Schwab (mostly because they have an office a block away) as an independent broker to mange a wide range of funds.
We have learned many things from experience, and much, much more from the FundAlarm and MFO contributors (that would be you guys). We have been very fortunate, and done quite well overall. But there is no getting around the fact that one decent adviser, putting us into American funds, started us down that long investment road. Stodgy but safe. That original 4.5% load was well worth it for us.
As I've said here a couple of times before I wouldn't recommend American to anyone starting out these days. Times have changed greatly with respect to decent sources of investment information (MFO itself being a great example) and I think that it's perfectly possible to do pretty well on your own.
The Janet Yang M* article pointed out some good characteristics of Capital Research and Management Company. But it never once mentioned the arcane pricing policies, front-loads, and generally higher fees (based on AUM) that American Funds continues to impose on its shareholders.
You are absolutely right that years ago, circa 1960-70s, front loads were common. But simply not the case today.
I guess I just can't get out of my head the image of a young school teacher, opening up her first American Funds' statement showing that she's lost nearly 6% of her savings. Again, not having read the fine print in the brochure that her principal handed out to everybody at the first teachers meeting. But she proudly signed-up for weekly deposits, so every week, American Funds skims 5.75% off the top.
This practice goes on across the nation to thousands of young or inexperienced investors not knowing the expenses they are paying. There are much better alternatives today.
In this case, I think M* helps perpetuate an indefensible practice by the mutual fund industry, which borderlines on shareholder abuse.
Take the strengths American Funds has today, eliminate the front-loads, eliminate the 12b-1 fees, streamline their share class structure, reduce ERs commensurate with the enormous AUM, and then they will truly be deserving of the high stewardship grade for a future generation of investors.
I'll add this also: when, in 2008, our American Funds balance dropped below the no-load minimum, they did NOT charge any load as we bought, sold, or readjusted our positions. I thought that that showed a bit of class.
Regards- OJ
In retirement plans typically you will see R class of American Funds. R6 is the best. Others are progressively more expensive depending on how much the company paying or not paying for that plan.
I think A shares are either load waived in a retirement plan but it is not common to see this share class there.
A class is really for advisor (or broker sales) channel. American funds have been so successful in the past as they has resasonably well performing funds among other load families and they left money to the advisors via those front loads. Now people are moving to low cost investments and advisors are moving to AUM percentage model that old scheme has become a liability. They lost so much assets even if their funds actually performed reasonably well.
This has nothing to do with how good American Fund managers are, or the amount they give to charity (which I don't think they do). This is about what is right for the individual investor. M* does not leave any opportunity to give a b****** to American funds.