| The three largest fund families in the world today
are American Funds, Vanguard Funds, and Fidelity Funds, and in
that order by number of dollars under management. Currently American
Funds controls more than $900 billion in managed accounts through
30 different funds. Of the $900 billion under management, some
$600 billion is US based, and $300 billion are non US assets.
In business for over 75 years, the American Funds Family operates
through five concepts. They are:
value oriented approach
American Funds believes in the long term approach. They are not
traders. They are looking to buy companies at reasonable prices,
and hold for years. If you were to look at the industry average
for ALL mutual funds, you would find that there is an 83% turnover
per year per fund. This means that the average mutual fund completely
changes its holdings about every 14 to 15 months. At American
Funds, that turnover rate has been reduced from 83% to an unusual
29%. This among the lowest turnover rates in the industry.
Global research approach
American Funds do not limit themselves to the United
States only. They comb the world looking for appropriate investments.
In any given year, the research team at American Funds will literally
visit 1000’s of companies physically. This means they go
onsite in more than 70 countries. What is also remarkable is that
the same research team will visit the same companies after the
fund’s make an investment.
The team also talks with the bankers for the company under
investigation. They talk with the vendors, and the customers.
They will meet with government officials and economists if they
are involved in the company’s business. Here’s one
you will find hard to believe. American Funds first started
doing business overseas when they opened their first office,
back in 1962 when JFK was President. This is before 98% of today’s
mutual fund managers bought their first stock. There’s
a lot to be said for experience, and long term institutional
Multiple portfolio counselor approach
The approach employed by American Funds has developed
over the last five decades. It is a team approach. At the same
time there is individual accountability for portfolio selections
to ensure that responsibility for bad choices does not fall
through the cracks.
One of the practices that American Funds employs is what is
called a “BEST IDEAS” approach. At this family of
mutual funds, each portfolio manager is asked, what is your
best idea? In essence what you get by owning a mutual fund with
this company is each manager’s best idea. This is radically
different than asking any one portfolio manager for their top
50 ideas. These best ideas are then mixed in with the ideas
of other investment managers, and bingo, you have a diversified
You have another advantage with American Funds. One of the major
problems experienced by most mutual funds is that a fund runs
up a great track record over ten years, under the same manager
who becomes a legend. All of a sudden, the manager retires or
leaves, and you have a new manager. Where does this leave you?
At most mutual funds you are now between somewhere and nowhere.
American Funds gets around this problem in a unique way. Since
each fund is run by a group of managers, each of whom is contributing
his best ideas, if an overall manager leaves, perhaps as much
as 80% of the management team is still in power. Only a minor
portion of the portfolio will change with the departure. But
wait, there’s more. If the company knows ahead of time
that someone is leaving or retiring, a new manager is immediately
eased into the position to structure a rational transition.
Who else does this, not anyone we know.
Investment professionals are experienced
If we took all the portfolio managers who work at American
Funds and put them in a room together, you would note that on
average they have spent 22 years with this remarkable investment
company. This may well be the most experienced portfolio management
team in the industry.
Just as important is that the average professional with American
Funds has 26 years in the investment business. More than 50%
of the portfolio managers were running money before the October
1987 stock market crash. This is important. It means they understand
not only the downside, but that the downside exists.
We are personally surprised to learn that over 33% of the managers,
that’s one out of three, were in the 1973 – 1974
bear market. We were there. We know what it means to survive
a bear market, and how this matures your thinking. Most of the
go-go managers who were involved in the Internet Craze in the
late 1990’s are now driving taxis on Wall Street.
Low operating expenses
All mutual funds, and fund families have operating
expenses. American Funds does not claim to have the lowest operating
expense ratio in the industry, but they are close to being the
lowest, and that benefits the fund investor directly because
the lower the expenses, the more money there is to invest.
The asset base of American Funds is absolutely enormous, but
they have fewer funds than most mutual fund families. What does
this mean? It means you have more funds in each mutual fund.
That means the concept of economies of scale applies, and that
gives you low operating expenses per fund. You have superb service
combined with reasonable cost. It makes sense to us, and it
will make sense for your portfolio, and the results you get.
If you can keep costs low, and therefore keep more money in
the fund to invest, over a period of years, your performance
can become extraordinary.
Tracking your American Funds investment
Via the INTERNET
If you own any of the American Funds families
of mutual funds, you can track your investment every day by
going to their website at AmericanFunds.com, and using the drop
down menu check out the closing price of any fund that you own.
The website is updated every day, and the closing prices are
available no later than 6PM on any business day. It’s
a nice option to have. If you want to take the time, you are
even able to customize a home page for yourself. It’s
well worth doing if you are a regular investor.
Via the NEWSPAPER
Major newspapers also carry a listing of mutual
fund prices and these would include the American Funds Family.
Keep in mind that not all mutual funds are carried by all newspapers.
Sometimes a specific fund has to reach a certain asset size
before a newspaper will carry quotes. The only way to tell if
your specific newspaper is carrying your specific American Funds
mutual fund is to LOOK for a quote in the paper itself.
Via the TELEPHONE
We are going to give you three telephone
numbers for the American Funds family of funds. The first number
800 325 – 3590
This number is the 24 hour
automated phone service. It’s easy to work with.
800 421 – 0180
This is the Shareholder Services phone
number. It’s good from 8 AM to 8PM five days per
week, Mon-Fri, Eastern Time
949 975 – 5000
Only used this number if you are calling
outside the Continental United States. You will have to
speak with an international operator first. She will place
the call to Shareholder Services for you. The hours remain
the same 8 to 8, Mon-Fri, Eastern Time
You won’t have to be concerned
about being kept informed if you are an investor in the American
Funds Family. First of all, you get a quarterly statement every
quarter. If all Your fund investments are under the same name,
address, and taxpayer identification Number, then they will
be combined into one statement. The statement will show you
Everything you need to see and know, including number of shares
owned, dividends, Capital gains, distributions etc.
How about going Paperless?
Yes, you can do that to, just
by notifying American Funds that you want to receive all your
necessary information via computer. They will simply e-mail
you what they would have sent to you in the mail.
Once a year – You get a Prospectus
The Securities Exchange Commission requires
that a mutual fund issue a prospectus once a year to all shareholders.
The prospectus is a long, thorough, and accurate document that
will give you an abundance of necessary information. It is well
worth your while to go through this document. You will see the
names of the portfolio managers for the specific American Funds
mutual fund, you are invested in. You will know how many years
they have been with the company. You will lean more about the
investment objectives of the fund, and the specific risks and
portfolio approach they take to investing.
Expect to receive every six months, a shareholder
report for your mutual fund. It’s a highly descriptive
document telling you abut your fund, and the investment portfolio
that you are invested in.
Of course there is the Proxy Statement
Sometimes a mutual fund wants to change certain
things. These are called significant business matters. The fund
must notify you of the suggested changes, and you must be given
the opportunity to vote yea or nay to such changes. It’s
up to you as to how you want to be notified, whether by mail
which is normal, but you also can opt for the phone or online.
The choice is yours.
Types of Accounts
Generally you can have any one of number of accounts with American
Funds. They include Retirement Accounts and Education Accounts.
The Retirement Accounts include IRA’s, 401(k) plans, 403(b)
plans, Roth contributions, SEP plans, SIMPLE IRA plans, Profit-sharing
/ money purchase plans.
The Education accounts include CollegeAmerica 529 college savings
plans, Coverdell Education Savings Accounts, and accounts for
minors which are und the UGMA Act.
This is a proprietary service that American Funds has set up
between themselves and your bank account. It is a direct link
between the two which allows you to invest as much as $100,000
per day for each shareholder. You can also sell as much as $75,000
per day of any fund you own in the American Funds family. To
buy share online or by phone, you must be a member of the FundsLink
family, which means you must enroll in this service. If you
want to establish an automatic deposit meaning investment or
a withdrawal plan, it is done through FundsLink.
Initially, you would invest in the American Funds family by
going through your financial adviser. Once the initial purchase(s)
are made, you can then establish a FundsLink account, and used
the system to make additional purchases or sales.
Always consider consulting whoever it is that advises you with
regard to your investments before deciding to sell shares in
any mutual fund, or mutual fund family. This is true for American
Funds as well. There are tax ramifications that have to be considered,
and your tax advisor will tell you what they are. Your sales
will also influence your long term financial targets, and you
must consider this also.
Once the fund receives your request to redeem a certain portion
of your fund investment, your request is processed automatically
on the day following the request. This assumes that you haven’t
changed your address in the system during the previous 10 days.
This is done to protect YOU, from fraudulent behavior.
If you have requested American Funds to directly deposit the
funds into a banking account that you have on file with the
company, this will be done automatically, but the 10 day change
of banking account rule will be in effect also.
Determining your Redemption Price
Every day when the New York Stock Exchange closes, every mutual
fund in America determines the Net Asset Value or NAV of the
fund. It’s a complex calculation that is in compliance
with the Securities and Exchange Commission. In addition, the
fund’s external auditors validate the number that is generated.
Funds do not play hanky panky with the NAV numbers that are
generated. You can bank on the number being accurate.
If your request to liquidate is received before the NYSE closes
at 4PM, then you will receive the NAV calculation for that day.
If you request is received after the 4PM closing, than you receive
the calculation for the next day. A check goes out to you the
next day after processing. As you know, the sale will more than
likely trigger a tax event. Discuss this with your advisors
so that you are ready for it. In fact, discuss it before you
liquidate, so that you understand all the ramifications of the
You can basically write checks against your mutual fund investments.
The checks usually have to be for $250 or more, and they are
against the Class A share accounts, which are money market funds.
There is no fee if you are writing a check against a money market
account. What’s nice is that you will continue to earn
dividends every day, until your check clears the bank. Your
financial advisor will set up the check writing privileges for
your account, or do it yourself by calling 800 421 – 0180,
and asking for a book of 20 checks.
Reinvesting your dollars
All you have to do is notify the American Funds Service Company,
and you will be able to reinvest proceeds in their mutual fund
family. This could be a redemption reinvestment, or a dividend
payment or even a capital gains distribution. There will be
no sales charge if reinvested in the same fund or account. The
transaction must occur within 90 days after the redemption or
distribution. There are limitations on this procedure, so speak
with your advisor.
One fund into another fund
Yes you can make exchanges from one fund into another. Some
investors will reinvest dividends or capital gains from one
fund, and put the proceeds into another fund. You must go through
the prospectus to see what is allowed and what is not allowed.
The rules are somewhat complex, and perhaps you should contact
the financial advisor who put you into the fund to begin with.
There are also minimum dollar amounts ($250 most of the time)
that must be employed. There are also maximum amounts that are
involved if there has been an exchange within the previous 30
If you want to do an exchange, you have four options:
1) Your financial advisor can do the whole thing
2) You can do it online at www.americanfunds.com
3) You can phone in the request
4) You can mail in the request
Your Mutual Fund and Taxes
In January of each year, you will receive an account statement.
Make sure you keep it. This is your fourth quarter statement,
also called your year end statement. If you have a taxable account
with American Funds, they will send you an American Funds Tax
Guide. You must keep this Guide in a safe place. You and your
tax advisor will need this document to determine your tax liability.
There are tax worksheets in the guide that will also help you.
Let’s look at a few funds
American Funds AMCAP Fund is run by a group of pros, on average
each player in the group has more than 20 years with the mother
company. There are also 22 analysts who help run the fund by
each handling a piece of the assets. These are proven companies
they are buying, each of whom has document high growth over
a period of years. Yes you will find a name that you don’t
recognize here and there, but if it’s in the portfolio,
it’s deemed to be special.
The jockeys also keep a large cash reserve, and they used it
to apply the principle of risk containment to the portfolio.
We have seen cash positions approach 15% in this fund. In a
bear environment, they used that cash to pick up bargains. American
Funds AMCAP Fund has a very well diversified group of stocks
in their portfolio, and this fund has delivered performance
The four main managers who run American Funds AMCAP Fund have
been with the company an average of 12 years, which is extraordinary
by Wall Street standards. We have liked this fund for years,
and for the right investor who has a longer than average time
horizon, you should be well served by this fund.
America Balanced Fund
This fund is run by seven portfolio managers. The lowest guy
on the totem pole has 12 years experience with the Fund family.
It then works its way up to the most experienced manager with
32 years with the company. It just doesn’t get any better
than that. What this means is that if you look at this fund’s
history, you are seeing the living investment history of the
same guys who run the fund today, and that dear investor, is
what you want.
The guys running the fund are contrarians. We can remember during
the Internet craze in the late 1999 to 2000 period, these managers
were putting big dollars to work in value companies that had
been knocked down to nothing, and they were right. During the
next few years, they out performed their peers. We now see them
going into the big caps with low valuations. They seemed to
have avoided the financial stocks that have cost investors a
bundle lately in the market.
With an absolutely terrific past performance history, we like
this fund for the next couple of years. Investors are going
to turn to this fund for performance over the next couple of
years, and why not? These guys know how to manage.
American High – Income Trust
This fund is run by Abner Goldstine, David Daigle, David Barclay,
Susan Tolson, and Marc Linden. They have more than 12 credit
analysts who work on their ideas all day long. The fund is divided
into pieces with each manager taking a slice. They talk to one
another constantly to avoid duplication of efforts and to keep
each other informed as to what each member is doing.
Here’s how American High-Income Trust works. If you are
into investment income, and you want to take equity type risk,
and want diversity in your income producing holdings, than this
may be the way to go. The managers and analysts spend their
days looking for abnormalities in the high income market sectors.
Now, this does mean you can get hurt when something like the
sub prime market gets hit, and that’s part of the game.
As you know though, with some calamities also come opportunities.
They are looking at the bank loan opportunities as we write
this. They are also looking at the homebuilders and the housing
market bond sectors. You don’t buy into such a fund looking
for short-term performance, that’s just not the way to
go. This is a fund that warrants a multi-year approach to income
investing, and these are some of the smartest guys and gals,
you are going to find implementing this approach anywhere. If
income is your goal, and you can take some risk, than make sure
you include American Funds, American High-Income Trust on your
list to study.
American Mutual Fund
This fund is run by Abner Goldstine, David Daigle, David Barclay,
Susan Tolson, and Marc Linden. They have more than 12 credit
analysts who work on their ideas all day
You might be getting ready to retire and you are in the market
for a new mutual fund core holding during this period. You might
be an income oriented player or a growth player but you are
concerned about downside. If these concepts apply to you, than
take a look at American Funds, and the American Mutual Fund.
One of the managers of this fund is James Dunton. He has been
with American Funds for 40 plus years. Aside from this vast
investment experience, it means he knows where all the bathrooms
are. On average the managers of this fund, some five in number
are with American Funds for over 25 years. This is simply an
amazing statistic in view of the average turnover in mutual
fund management in this industry.
There are three goals for the American Mutual Fund. They are:
- Current Income
- Capital Growth
- Protect the Principal
So how do they execute on the three goals? You do it by only buying
established companies with a strong operating history, and oh
yes, they better be paying a dividend as well. The real question
which most investors never ask themselves is VALUATION. These
guys only buy when they are throwing the stocks away. You have
heard the expression that in real estate, it’s all about
Location, Location, Location. Well, in stocks it’s all about
VALUATION, VALUATION, VALUATION.
The expense ratio is low here as well. You’ve a record here
of solid growth over a period of years. They know how to manage
downside volatility as well. If you want return, the ability to
sleep at night, and know that your portfolio managers have decades
of worrying about stocks than just maybe the American Mutual Fund
managed by American Funds is for you.
Capital World Growth and Income Fund
like the other fund managers we presented to you, if you own
American Funds, Capital World Growth and Income Fund, you can
be assured that your management team is seasoned. The guy with
the least experience on this team has joined the parent company
in 1990. What does that tell you? They are seasoned, that’s
what. Every one of the players on this team has been there for
decades. They have seen both bull and bear markets. They know
what downside means. They are all part of a team. They take
a slice of the portfolio and they manage it.
In the case of American Funds, Capital Growth and World Income
Fund, the managers, and the investors want yield. They are long
term in orientation. They want big dividends attached to household
names like Chevron, Bayer, General Electric, and Royal Dutch
Shell, which may or may not be in the portfolio at this time.
The cash position is usually 10% or more. They used the cash
to help control downside volatility.
They are also players on a world wide basis. When we look at
them, and look at their peer group, we think Capital Growth
and World Income Fund invest less in domestic stocks than most
of the peers do. What’s really impressive is that only
once in the last 14 years, has the fund had a below average
year, and that’s saying something. You could not do much
better than this fund as an investment, and you could do a lot
Capital Income Builder
It’s about income pure and simple with the American Funds,
Capital Income Builder mutual fund. The focus is income, income,
and more income. On the stock side (about 50% of the assets)
you will only find stocks with high dividends. On the bond side
(usually about 40% of the assets) of the portfolio, you will
find mortgages, and corporates, and certainly United States
The turnover rate here is so low, that the company needs 4
years to replace its portfolio. That’s a 25% turnover
rate. What’s more important is that with over $100 billion
under management, you would think they would have a tough time
deploying the money. They don’t, they are constantly invested,
although they do keep large cash balances for a rainy day.
Capital Income Builder has done so well in fact, that over
the last 36 months, they have tripled their money under management,
and it hasn’t diluted their performance. They have been
invested heavily overseas lately, and with the collapse of the
American dollar, that has certainly helped their performance.
Compared to the peer group, they operate against, their expenses
are low. We like Capital Income Builder. If you need income,
you must look at this mutual fund.
EuroPacific Growth Fund
With over $100 billion to work with, the EuroPacific Growth
Fund from American Funds is the magilla gorilla of foreign investment
funds. They are four times the size of their nearest peer. A
group of managers run the fund by dividing the fund into slices.
You have to have more than 10 years experience with American
Funds to be a player in this fund. In addition the analyst staff
runs 25% of the fund by itself.
You have diversification here. Sometimes the portfolio can be
as much as 300 stocks. Hey, the world is a big place. Like everything
else though, most of the portfolio, about 70% in fact, is in
about 100 names. These are companies like Nestle, Bayer, Nokia,
Vodafone, and Samsung. You will find Brazil, Mexico, Russia,
and South Africa represented in those names as well.
Let’s add something else here. The United States is the
most important player in the world economy, and the world is
going to continue to get richer and bigger, with occasional
dips or recessionary periods. We have to recognize that the
growth rates in the United States must slow down by virtue of
our SHEER SIZE. This is not true outside the United States.
Most of the world is starting off from a much smaller base size.
As a consequence the growth rates are much stronger internationally,
than they could possibly be in our country. This is why you
should consider foreign investments. If you have good portfolio
managers, and the strong growth rates, as long as they watch
the currency fluctuations, you should do well over a period
of time, and EuroPacific Growth Fund from American Funds has
been an excellent way to participate. Consider this fund.
There are five portfolio managers with the Fundamental Investors
Mutual Fund from the American Funds family. These are value
players. They want dividends and growth. Each of these managers
average more than 16 years experience as stock pickers. We don’t
know of many mutual funds with a better management team than
this one. The analyst team supporting this fund is a good as
it gets. You would be surprised how much money this domestically
oriented fund puts into foreign holdings as well.
They want overlooked stocks that have value, that for some reason,
other analysts are just missing the boat. If you are a depressed
growth stock, this portfolio team is going to find you. They
caught the energy move in the United States and abroad. They
increased their foreign holdings just before buy Euro became
the rave. Somehow, they even managed to lighten up in the financial
sector before the destruction.
Savvy is the word, and these guys got it. There is an issue
here, and that is with $50 billion to manage, can this approach
continue to absorb this kind of investment money. The answer
is probably yes. Smart guys will always find a way to invest
their money. They will simply have to move into stocks with
bigger capitalizations, and they are out there to do. The Fundamental
Investors Mutual Fund from American Funds should be considered
by any investor seeking above average performance, and the ability
to sleep at night.
The Growth Fund of America
The Growth Fund of America is approaching $200 billion in managed
money. There are ten managers who run the portfolio. Aside from
these ten individuals, a portion of the fund is run by some
of the career analysts with the fund. The mother company will
have to add more managers because of the sheer size of the fund.
Now depending upon who these new people will be, there is a
question as to future performance.
For a growth oriented fund, The Growth Fund of America is experiencing
less volatility than other similar mutual funds. One of the
reasons is the sometimes large cash position maintained by the
fund. They also pay particular attention to what they pay for
any one stock relative to fundamentals. This portfolio teams
jumps all over growth stocks, and turnaround situations. They
also love to buy the cyclical.
You will find companies like Target, Las Vegas Sands, Time Warner,
and Lowe’s in their portfolio from time to time. We have
really liked this fund for a long, long time. The question is
with The Growth Fund of America approaching $200 billion in
assets, we know they can move in and out of the big cap names
with ease, but can they get enough of those lesser caps into
the portfolio in enough size to score the really big successes
that they have in the past. That’s the question, and we
can not answer it at this time, but based on past performance,
this is really, a top tier mutual fund.
The Income Fund of America
You won’t find many tech stocks in this portfolio. The
reason is that technology stocks as a rule do not pay much in
the form of dividends, and this mutual fund hunts for dividends.
Instead, you will find financial stocks and utility stocks as
a rule. They also run a bond portfolio as part of the overall
asset base. What is interesting there is that 80% of those assets
are invested in investment grade or higher bonds.
Except for the last year or so, this fund has outperformed more
than 85% of its competition during 6 of the last 7 calendar
years. Now listen up, if you own an investment portfolio like
this one, occasionally, you are going to get zapped. Right now
is just such a zapping time. Here’s how the whammy happened.
You know that financial sector has been ravaged. Well these
guys sure owned the financial sector, including Citigroup, Fannie
Mae, and Washington Mutual, a nightmare scenario. They are also
in the high yield market. When the mortgage market got hit,
they took the good with the bad, and the Income Fund of America
held some really good high yield paper. It got hit also.
Now at some point these credit concerns are going to subside,
and the performance will be back. The fund has just been overwhelmed
by being in the wrong market at the wrong time, the worst of
all scenarios. We can’t emphasize enough, that this is
a temporary condition. You are probably approaching an inflection
point which will be an excellent opportunity to position yourself
in the Income Fund of America. They have an enviable expense
ratio. The management team is superb, and the investment approach
is smart and conservative. We like it.
The Investment Company of America
This mutual fund is managed by the following people and look
at their experience.
Joyce Gordon as an example has spent more than 2 decades studying
the banking industry. The fund seems to buy two types of stocks.
One is the blue-chip sector which includes dividends. The other
sector is buying depressed growth stocks. There are also bonds
The asset base is pushing $100 billion under management. The
expense ratio is slightly higher than ½ of one percent,
among the lowest in the industry. Frankly, the management fees
are cheap for what this company does.
For about three years in the last seven, the performance has
been sub par. When you consider the other magnificent funds
that American Funds sponsors, there might be more appropriate
choices for investors than the Investment Company of America.
New Perspective Fund
The goal is to invest worldwide including America, and search
for growth. About 30% of the funds are invested in the United
States at this time, and the fund has been around for more than
30 years. Every manager in this fund has been with the mother
company for decades. Every stock in this portfolio is an established
company – no startups here, and they must be profitable.
They also hold stocks for years, once the purchase is made.
This means they let their winners run, which is something astute
investors must learn to do. Most investors sell their winners,
and hold onto the losers, hoping, just hoping that the losers
come back. The fund also does well against its peers because
they have more money committed overseas, and recently there
has been a run up in foreign stocks and that has benefited New
Perspective Fund over its rivals. To put it another way, foreign
stock markets have been the place to be recently.
SMALLCAP World Fund
The two top managers of this fund in terms of longevity have
more than 30 years in the investment industry. The two on the
low end have 9 years or more. The team is seasoned folks. This
is a small cap fund, and that means that the capitalization
of 80% of the companies being invested in must be less than
$3.5 billion. It’s a world fund, so you will see most
investments outside the United States. At the moment about 30%
of the assets are deployed in America.
The SMALLCAP World Fund also invests in government debt and
corporate debt as well as stocks. For years, the performance
has outpaced not most, but all of their rivals. We have also
seen the fund size quadruple over the last several years. Now
that may portend a problem. There are also many more rivals
today than there were years ago.
Warren Buffett talks about three types of players in the market.
He calls them the three I’s. The first I is the INNOVATOR,
the second I are the IMITATORS, and the third I are the IDIOTS.
As more and more funds seek to duplicate the stellar past performance
of SMALLCAP World Fund, it will be more difficult for any of
them to out perform since there are only so many small cap companies
that can be bought throughout the world.
Good luck investing, and take a look at the rest of the www.valuestockplayers.com
website. We are proud of our work here, and it just might benefit
you if you are also an individual buyer of highly select common
stocks. We run a subscription based website for discerning investors,
and we wish you all the success in the world. The informed investor
is always a better investor with better performance over a period