This Day On The Street
Continue to site
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

As technology stocks soared in the late 1990s, the cautious approach lagged the hottest performers. But when the technology bubble burst, American Funds shined. Having shunned high-priced Internet stocks, Growth Fund of America and other funds outdid the big majority of their peers. Impressed with the reliable record, financial advisors rushed to invest in the solid performers. In 2002, American took in $38 billion in inflows, accounting for 28% of the industry's total.

American Funds fared less well in the turmoil of 2008, when some large-cap value managers held big stakes in troubled financials. The bad results contributed to outflows. In 2010, investors withdrew $48 billion from the company. Results began improving in 2011, but the outflows accelerated. In 2012, investors have withdrawn more than $63 billion.

Instead of abandoning American Funds, shareholders should consider new investments. At a time when many blue chips appear modestly priced, the cautious style should perform well in the coming years. Make no mistake, American Funds is not likely to lead the performance standings in any one year. Staying broadly diversified, the portfolio managers avoid big bets on individual stocks or sectors. But the careful approach can deliver competitive returns over the long term.

A top choice is American Funds EuroPacific Growth (AEPGX), which returned 18.8% this year. During the past 15 years, the fund returned 7.5% annually, outdoing the MSCI international benchmark by 3 percentage points annually.

EuroPacific Growth achieved its strong record by controlling risks and topping most competitors in downturns. During the financial crisis, the portfolio managers shifted away from banks and other businesses with less-than stellar balance sheets. Instead, the managers focused on resilient healthcare and telecom companies that weathered the turmoil in relatively sound shape. That helped the fund outdo most competitors in 2008. The portfolio focuses on rock-solid blue chips. Holdings include Danish drug maker Novo Nordisk (NVO) and Mexican telecom giant America Movil (AMX).

Another strong choice is American Funds Fundamental Investors. During the past ten years, the fund returned 9.2% annually, outdoing the S&P 500 by 2 percentage points and topping 96% of large blend funds. The managers look for modestly priced stocks with strong balance sheets and growth potential. The fund often holds sizable stakes in foreign stocks. Holdings include Home Depot (HD) and pharmaceutical maker Merck (MRK).

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 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
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $92.21 -1.10%
FB $118.99 1.00%
GOOG $708.09 0.95%
TSLA $215.07 1.70%
YHOO $37.10 0.43%


Chart of I:DJI
DOW 17,685.61 +24.90 0.14%
S&P 500 2,050.59 -0.04 -0.00%
NASDAQ 4,711.58 -5.5140 -0.12%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs