American Funds

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:

Long-term, 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 1000s 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 funds 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 companys business. Heres 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 todays mutual fund managers bought their first stock. Theres a lot to be said for experience, and long term institutional culture.

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 managers 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 portfolio.

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, theres 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, thats 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 1990s 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. Its a nice option to have. If you want to take the time, you are even able to customize a home page for yourself. Its well worth doing if you are a regular investor.

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.

We are going to give you three telephone numbers for the American Funds family of funds. The first number is: