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American Funds F1 shares can be purchased no-load.
Regarding loads and advice. Over at M*, John Rekenthaler wrote a column a few years ago (that I cannot seem to find) detailing why loads can actually work better (read: cost less) than other forms of compensation for small investors.
What I could find was a more recent paragraph by him summarizing his position (with which I concur): Emphasis added.
He goes on to sketch figures comparing access and costs of wrap accounts vs. loads, though in the broader context of discussing the new DOL fiduciary rule.
Since I don't seek advice (heck, I actively run away from anyone pushing advice at me), this "back to the future" sales channel of American Funds is attractive to me, as it may be for many people here. But it won't work for everyone.
As I posted at M* this afternoon, "Good move by AF. I'd prefer to own the F-2 shares that don't have 12(b)-1 fees but this is a welcome move and will let me re-consider some AFs that I like but refused to buy due to loads."
I already hold several (loaded) AFs that have done very well and while I wouldn't pay loads for them now (as an older experienced investor) I'm not dumping them anytime soon.
If you had direct access (i.e. no advisor required) under the same terms, would you pay the transaction fees for F-2? I would, but I invest long term and look at total cost. I believe some people here have written to the effect that they would not pay a fee to purchase a fund. The point is that access to cheaper institutional shares doesn't come for free.
Sometimes it isn't even a matter of higher mins for the institutional (lower ER) share class. It may be strictly a matter of TF. For example, at Fidelity, in an IRA, you can purchase the I (institutional) and N (retail, 0.25% 12b-1 fee) share classes of AQR large cap funds with the same $2500 min. AUEIX & AUENX, AMOMX & AMONX, QCELX & QCENX.
I'm sure ER is jacked up on those F1 class shares. However, now at least I can look at AF without throwing up. Maybe they are available at Merrill NL now.
If opening up sales channels is an acknowledgment that active management is worthless, then is closing some sales channels (e.g. converting from a no load family to a load family) is a declaration that active management is great? Perhaps it is simply a way of optimizing business, taking into consideration effects on sales force (brokers/advisors), cash flows, AUM, performance, etc.?
American Funds has for many years sold its funds in both load and no load share classes. If, say, Fidelity, did that, would they also be wrong? Oh wait, they do, e.g. FFRHX & FFRAX. As do PIMCO, American Century, and various other fund houses.
American Funds has been selling F shares since 2002 (they became F-1 in 2008 when AF launched F-2 w/o the 12b-1 fee).
I checked the 2003 EuroPacific Fund prospectus. The F shares were indeed slightly more expensive when they started out: They had a 12b-1 fee of 0.25%, while the A shares had a 12b-1 fee of just 0.14%. So the F shares were11 basis points more expensive.
But by 2008 when F-2 launched, both A and F-1 shares had a 0.25% 12b-1 fee, and virtually ERs. It looks like they jacked up the load share class fee, not the other way around.
Or maybe they are just gearing up for the new fiduciary rule. Better have a no load class of shares in place, right?
The advisor may now have to be more honest, but American Funds is not changing what the advisor can sell you or the cost of those shares.
IMHO people aren't wising up. Just the opposite. They gladly pay 1%/year in wrap fees forever rather than pay a one time 5% fee of the purchase amount (with free exchanges within the family).
Wrap fees have supplanted loads as a way for advisors to make their fees palatable while extracting more money from their clients. Wrap fees function like C shares, but advisors can advertise that you won't pay a load.
Likewise, noload investors gladly pay 0.25% in perpetuity rather than a one time fee of a few bucks per purchase.
While I wouldn't pay a wrap fee, one presumably isn't tied to one (possibly bloated) fund family, so a lucky adviser might earn his 1% by skilled diversification. OTOH, I admit I have grudgingly (never "gladly") paid the 0.25% for a fund manager unavailable otherwise. If I've got my country school math right, the 0.25% fee might take 10 yr or longer to balance the 5% load, assuming some of my current (American fund) returns.
As I gradually drift toward Vanguard, individual stocks or ETFs, or index funds, this is an irrelevant point.
Check out any of the AF funds and notice the high number of "counselors" (i.e. managers). They have 3 or 4 TIMES the number of managers on most fund. -- Each of those 'counselors' likely drawing a fat, FAT salary. How is it that so many decent funds make do with one or 2 managers, while AF needs so many? If I recall, each counselor manages a portion of the assets, and they each can buy stocks of their own choosing. -- likely resulting in many of the same stocks "owned" by multiple of the counselors. Sounds like a very duplicative process -- meaning duplicative costs.
Time for 2/3 of the counselors to be 'redistributed' and the E/R cut.
One has to believe AF managers deconflict purchases so that (to use your hypothetical) if 4/9 managers all want to own XYZ, the fund will not suddenly have a 30% position in that one stock.
So it does not matter to me if ER of NL shares is higher. I will NEVER buy a load fund. It is just ridculous to have 5.5 shaved off the top
@STB65 - an excellent point, more so now than in the past. In days of yore, it was not uncommon for load families to waive their loads for exchanges from other load families. FINRA still has a page on this, it's called Net Asset Value Transfers:
For conspiracy theorists, it may be that the fund families started dropping this en masse when wrap accounts became popular. Wrap accounts offered a similar feature ("free" transfers between families), but bigger fees (in the long term) for advisors.
These days, I'd expect a good advisor (who is using load funds) to use families with a broad range of funds so that keeping money within a family would not be a problem. To the extent that AF funds are bloated, that seems to be a family-wide characteristic. So if this is viewed as a problem, one would not likely be attracted to the family at all. And if not, then AF has a good set of funds to move between.
@Alban - As Rekenthaler states in his column (see link above) a small wrap account isn't going to get serviced well. Quite possibly larger accounts as well, as Kitces discusses in his recent (August) column: "Why Reverse Churning Is About To Become A Big Advisor Problem" (i.e. advisors kicking back and letting the fees roll in - the opposite of traditional churning).
IMHO the only way to resolve conflicts of interest that will arise regardless of the method of compensation is to require the client's interest to come first. Period, end of story. Being somewhat less cynical than VF (though growing more so year by year), I still choose to believe that most people (including advisors) are decent and honorable and will do the right thing.
I've a small HSA that I likely won't be adding to (hard to get a decent HDHP in my county). Until one's account reaches five figures, most HSAs that offer investment options are not economical (fees too high and/or too much cash must be left in a low interest account).
But I found one HSA that only requires a nominal amount left in cash, and offers AICFX as one of its investment options (it seemed like the best on its short list of funds).
So there have been ways to get access to some F-1 shares even before this announcement. They're just quirky and hard to find.
What he missed was that the AF target date funds are built on top of the cheapest share class of funds (R-6, which even most institutions can't get). The extra premiums in the target funds are "other expenses" - the cost of their extra paperwork and administration. Then the F-1 shares add 0.25% to pay Fidelity and Schwab to offer them without commission. (I'd rather pay the brokerage commission, but that's another matter).
In contrast, Vanguard uses Investor class shares instead of Admiral or Institutional class shares underneath (thus reaping a similar incremental fee to cover administrative expenses). Fidelity has it both ways. With its actively managed target funds it plays Vanguard's game of hiding the target fund costs by using a more expensive share class for the underlying funds. With its index-based target funds it adds on the administrative costs explicitly, just as AF does. A little honesty there, at least.
Then you have PIMCO, which adds a management fee of at least 1/2% on top of the underlying funds fees in its Real Path 20xx target funds. Here's the prospectus. On top of that, on top of the 12b-1 fee that it adds to all but its institutional class, it has the audacity to add another 0.25% to its class D management fees, to hide the extra it's paying Fidelity and Schwab to offer the shares NTF, and maybe make a little more profit. Just what Prof. Snowball was talking about.
More than anything else, it's fees that soured me early on PIMCO; I've never understood why PIMCO, a load fund family, gets a pass.
I've noticed that PIMCO RealPath 2030 fund has performed quite well over the past year (although it has performed poorly over the past 3 and 5 year periods). I'm certainly not going to make a purchase decision based upon 1 year performance, but can anyone help me understand what components of its portfolio have made it perform so well over the past year's market conditions?
GBLFX looks interesting as a global allocation fund, too.
However, since each family's collection of target date funds has a different glide path, narrowing down the cause of performance differences is a multi-step process. Start by comparing 2030 funds' allocations - does the PIMCO 2030 fund have a higher allocation than other 2030 funds to stocks (and did stocks do better than bonds), or vice versa? If the stock portion outperformed, was it because it had more (or less) international exposure/small cap/value than its peers?
If you reach the conclusion that the allocation (either stocks/bonds, or allocation within stocks or within bonds) was not the cause of the performance difference, then you need to look at the underlying funds. Did one of them have an unusually good year? If so, that's likely the cause, and you're down to the usual question: why did this underlying vanilla fund do well last year?
As far as good AF go, I have always liked AEGFX, and I agree with rforno about CIBFX. The latter has held up better than MALOX over the past several years and is cheaper to boot. Not that I've figured out how to purchase MALOX, though it does have a memorable ticker.