This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Investors Are Dumping a Champion Fund Company

NEW YORK ( TheStreet) -- Shareholders of American funds should be delighted with the performance of American Funds Growth Fund of America (GFFFX). This year the fund returned 22%, topping the S&P 500 by 4 percentage points and surpassing 93% of large growth peers, according to Morningstar.

The strong showing should not come as a surprise. During the past 15 years, the fund crushed the benchmarks, returning 8.2% annually and topping the S&P 500 by more than 3 percentage points. But not everyone is impressed. During the past year, shareholders withdrew $34 billion in assets from the fund, a huge outflow from a portfolio that has $112 billion.

Growth Fund of America is not the only American funds portfolio that delivered winning returns and suffered outflows. American Funds Fundamental Investors (FINFX) returned 18.6% this year, but it recorded outflows of $2.8 billion. American Funds Capital World (WGIFX) suffered $8.2 billion in outflows, even though the fund returned 19.8%.

Why are so many shareholders throwing in the towel? Many appear to be caught in a panic. Shaken by the financial crisis, investors have been dumping large-cap equity funds and shifting to bonds. But so far the exodus has been a mistake. During the past three years, equity funds have outdone bonds by a wide margin. Now the outlook is positive for 2013. With housing markets improving, the economy should grow. Chances are that the fiscal cliff will be resolved, giving consumers more confidence to spend.

The outflows have been particularly severe for actively managed funds, which aim to outdo the benchmarks. Angry that portfolio managers provided little protection in 2008, shareholders have been selling active funds and buying ETFs and index funds.

Plenty of fund companies have suffered outflows. But the exodus is particularly noticeable at American Funds, overseeing $915 billion in assets, American accounts for 10% of all mutual fund assets and ranks as the largest company that focuses primarily on actively managed equity funds.

American Funds grew over decades by following a conservative brand of stock picking. While other companies launched faddish funds, American focused on disciplined strategies that sought to buy undervalued blue chips. The funds were sold by legions of financial advisors who trusted the company to deliver returns that would satisfy clients.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $126.78 0.14%
FB $87.58 0.77%
GOOG $521.84 0.00%
TSLA $280.30 4.10%
YHOO $39.33 0.00%

Markets

DOW 17,757.91 +138.40 0.79%
S&P 500 2,077.42 +14.31 0.69%
NASDAQ 5,013.1230 +26.2560 0.53%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs