Am Funds Ad. Better than index(?).

[alaska55]

And, that doesn't include:
1) Any load paid to buy into the American Funds in 2008
2) Any fees paid the (required) financial advisor/broker to buy the American Funds and any ongoing AUM fees every year (can easily result in another 1/2% to 1% reduction in annual returns. In exchange, you'll probably get a nice Christmas card.)
3) The impact of the lower tax efficiency of the American Funds (if held outside of a tax-sheltered account).

The purpose of my post was that people make statements without looking up the facts. Samclem just prove my point again . If Samclem would read the portfolio visualizer faq page he will see fee expenses are included.

 

[alaska55]

My last comment on this thread. A quote by Larry Swedroe.

Unfortunately too many people just jump on idea that active management is going to underperform. Active management isn't bad because of being dumb. It's typically high expenses, which American doesn't have, excluding the loads, which many investors can avoid.

Also index funds other than TSM are unfortunately "dumb" indices in that they have negative features which can be minimized or eliminated with intelligent design, as DFA and other fund families do, like patient trading and buy and hold ranges and negative screens for stocks with negative characteristics (like those lottery ticket stocks).

American funds is about as well a run fund family as there is. And I use to use them prior to DFA becoming available.

And here's my write up showing that they have in fact done well, outperforming most active funds and index funds too, by sticking to their strategy, basically investing in factors and staying the course with low turnover.



Hope that helps
Larry

 

[pb4uski]

My last comment on this thread. ...

 

[Rustward]

You can only buy American Funds through an advisor. Their 1% AUM isn't included in the comparison?

You may be interested in this: https://www.kiplinger.com/article/i...uy-american-funds-without-a-sales-charge.html

"Capital Research and Management, sponsor of the American funds. . . just opened its doors for the first time to individuals who prefer to invest on their own and want to avoid sales charges."

So there seems to be some misinformation floating around.

. . . and I can absolutely guarantee that some AUM fees are a lot less than the often mentioned 1% -- more misinformation.

Please be factual and objective.

 

[Qs Laptop]

My first post here so be gentle.

I just left Edward Jones after 10 years and went to Fidelity. Ed Jones likes to use American Funds. My funds were front-load mutual funds but I wasn't paying an asset under management fee (AUM). So I paid the 3.5% load fee up front (it's 3.5% for investing over $100,000; the 5.75% is for less than $50,000.) There was no charge for exchanging American Funds for American Funds at Ed Jones.

I've researched this question of managed funds outperforming index funds, in particular American Funds. My answer? Yes, several of the American Funds outperformed the S&P500 index. I did my comparisons to VFINX since it goes back over 40 years.

When I did my comparisons I handicapped the American Funds with the 5.75% load. So, starting in 1976 I put $10,000 in VFINX and $9,425 in several American Funds and ran the numbers in a spreadsheet. Simple buy and hold. After "X" number of years which funds had the most money in them? I used annual total return as my metric. I compared these American Funds, which are mostly US equity funds:

ANCFX, Fundamental Investors
AMCPX, AMCAP
AGTHX, Growth Fund of America
AVISX, Investment Company of America
AMRMX, American Mutual Fund
AWSHX, Washington Mutual Fund
ANWPX, New Perspectives Fund (this is mostly a foreign fund, but I was interested...)

Even with the handicap of starting with less initial capital due to the sales load, ALL of these funds outperformed VFINX from 1976 to present.

ALL of these funds outperformed VFINX in the period 2001-2010

ALL of these funds outperformed VFINX in the period 1981-1990 except AMCAP and Growth Fund of America AGTHX.

However, only AGTHX beat VFINX in period 1991-2000.

ALL of them except AGTHX beat VFINX in period 2011-2014.

Before going over to Fidelity I ran the same numbers with several of the Fidelity Funds and the results are similar.

 

[Qs Laptop]

Can an investor buy an American Fund without paying a load or an advisor fee? No.

Yes. Buy the F-1 class American Funds at your discount broker.

. If you want to buy 'em (who knows why a person would want to),

To get higher returns than the index funds.

then you'll be paying a load or an advisor's fee.

Not any more.

Can an investor buy the Vanguard 500 fund without paying a load or an advisor fee? Yes. In fact, it is impossible to pay a load. As you point out, it is also possible to pay an advisor fee with the Vanguard fund (or any fund). But Vanguard doesn't make it mandatory to use an advisor and pay the advisor a fee (else pay a load). And they didn't do it in 2008, either.

You just need to buy at least $3,000 for your initial purchase.

 

[samclem]

Yes. Buy the F-1 class American Funds at your discount broker.

Yes, American Funds has now made it possible to buy their funds without a load and without paying an "advisor." They could have done it decades ago (like Vanguard, Fido, etc). Now, with a gun to their head (DoL's fiduciary rule, which made their previous business model untenable), they are going to do us the favor of allowing us to cut out the previously obligatory "advisor." Funny timing: Now that the "advisor" is (at least officially) supposed to be working only for the customer, with less flexibility to push customers into funds that aren't in their best interest, American now decides customers don't necessarily need advisors. They thought these same advisors were indispensable before, they liked 'em just fine when they were their salesmen.

To get higher returns than the index funds.

Yes, I see your post. As long as we carefully pick the starting year and duration, the back testing can look great. As we already saw, if you look instead at the last 10 years, not so much.

I am happy to count on low ERs, a corporate structure that makes every investor a stakeholder, and a "stock selection" strategy that doesn't depend on the unknowable talents of managers/cyborgs decades from now. If others want to put their money on a single horse, then I'm glad they have that freedom.

To the degree that American Funds managers are looking for bargains and keeping the market efficient, I owe them (and the clients who give them money) a big and heartfelt "thanks." Indexing can't work without investors who are searching for the best values, keeping the market efficient.

 

[Rustward]

Sam, I am trying to understand why you even care what American Funds does. You said you won't buy them, and I doubt that you own any of them.

There is really no point to all this contention about active vs passive management. Nobody has to prove anything to anybody.

Do what is best for you and let everyone else do what is best for them.

 

[Qs Laptop]

Yes, I see your post. As long as we carefully pick the starting year and duration, the back testing can look great. As we already saw, if you look instead at the last 10 years, not so much.

Where did we see that the American Funds I listed didn't beat the index the last ten years? I didn't list that. Anyway these funds beat it over the past 10 years:

ANEFX
AGHTX
AMCPX

Also did it for the previous 5 year period and the previous 3 year period. Pick just about any endpoint you want, they beat it.

You sound kind of bitter about American Funds. I thought they were (mostly) quality funds. It was only when Ed Jones wanted to put my IRA's into a AUM structure that I bailed out on them. When I moved to Fidelity I kept New Perspectives and New Economy Funds. I also kept my Franklin Dynatech Fund from Ed Jones as well.

 

[samclem]

Sam, I am trying to understand why you even care what American Funds does. You said you won't buy them, and I doubt that you own any of them.

Why does >anyone< exchange information here? It's not just about self interest (I hope). As I mentioned previously, my own interests (as an indexer) are advanced when people try to outguess/analyze the market to pick winners. The more people who invest in American Funds (and other actively managed funds) the better I will do.

I care what companies do (fund companies, car companies, insurance companies), for lots of reasons. One of them is that I don't like to see people taken advantage of.

Do what is best for you and let everyone else do what is best for them.

Of course. I haven't said people shouldn't be free to choose what they want to do.

A free exchange of ideas can help all participants. I learn a lot here (including this thread.)

 

[pb4uski]

I don't care if someone invests in American Funds or not. I do care when people cherry-pick data in order to make misleading claims about the performance of American Funds like in post #55 of this thread.

What is the matter with the most recent 5 years or most recent 10 years?

2011-2014? WTF? Ridiculous. There are reasons why in filings the SEC defines the periods for which performance must be presented... 1 year, 5 years, 10 years.... so issuers can't cherry pick the data.

 

[Qs Laptop]

I don't care if someone invests in American Funds or not. I do care when people cherry-pick data in order to make misleading claims about the performance of American Funds like in post #55 of this thread.

What is the matter with the most recent 5 years or most recent 10 years?

Nothing. New Economy, Amcap, and Growth Fund of America beat the index for last 3, 5, and 10 years.

2011-2014? WTF? Ridiculous.

Yeah, that does look like selective endpoint picking. The reality is I did my calculations in early 2015. I picked decades as my endpoints and the next block of years was 2011-2014. The fact is there are only a couple years in any 10 that these funds don't beat the index, so just about any 3 to 5 to 10 year span with any endpoint you pick would show they beat the index.

There are reasons why in filings the SEC defines the periods for which performance must be presented... 1 year, 5 years, 10 years.... so issuers can't cherry pick the data.

Sure, so go look at the data. Pick any 5 year period. Any 10 year period. See for yourself.

 

[Rustward]

I care what companies do (fund companies, car companies, insurance companies), for lots of reasons. One of them is that I don't like to see people taken advantage of.

Do you think that posting on a message board that is viewed by a small part of the population consisting mostly of people who already agree with you is going to keep people from being taken advantage of?

You need to found an action group, or start a radio show, or get into politics, or publish a book. Buy some full page newspaper ads. Set up a web site to inform everybody about all these the ways they can be taken advantage of. Get some exposure. Go for it! Fix what is wrong with the world!

Are there any other ways you could help people who really need help? I mean help the people who really need help. BTW, those who really need help probably don't have a few extra dollars to invest.

 

[flintnational]

I believe American Funds!

This is the chart from the American Funds ad referenced in the OP. Per the American Funds Ad, a blend of the five listed funds have under performed the Index in the 1, 5 and 10 year periods. This is based on the data in column 1, Titled "At Net Asset Value (does not reflect a deduction of a sales charge)". Column 2, Titled "At Maximum Offering price (reflects a 5.75% sales charge)" lags the index by even wider margins in the 1, 5 and 10 year periods. I will take them on their word. They under perform the index even without sales charges and it gets worse with sales charges.

Of note, in column 2, with sales charges, not a single listed American fund beat the index in the 1, 5 or 10 year periods. Not one.

 

[samclem]

Do you think that posting on a message board that is viewed by a small part of the population consisting mostly of people who already agree with you is going to keep people from being taken advantage of.

Thanks for your concern. New folks cruise through here all the time, somebody searching for "American Funds" might be misled if they just saw the ad in the OP. When half-truths and misleading info, I'll point it out right where it happens to be. What I don't understand is why you care? If you are blessed with the ability to ignore things you feel are incorrect (as you seem to be urging me to do), then it should be simple for you to set the example and just "move on."

 

[harley]

This is the chart from the American Funds ad referenced in the OP. Per the American Funds Ad, a blend of the five listed funds have under performed the Index in the 1, 5 and 10 year periods. This is based on the data in column 1, Titled "At Net Asset Value (does not reflect a deduction of a sales charge)". Column 2, Titled "At Maximum Offering price (reflects a 5.75% sales charge)" lags the index by even wider margins in the 1, 5 and 10 year periods. I will take them on their word. They under perform the index even without sales charges and it gets worse with sales charges.

Of note, in column 2, with sales charges, not a single listed American fund beat the index in the 1, 5 or 10 year periods. Not one.

Just out of curiosity, how long have investors been able to buy American Funds funds without a sales charge or advisor? Does that stretch back beyond the 5 or 10 year periods listed?

I don't really have a dog in this race, I'm just curious. I held AF funds for awhile when I had a FA, and one of the reasons I started DIYing was that I could do as well with lower costs and without the fees and loads. It wasn't a big difference, and IMO anyone who wants to buy anything, drive on. But for simplicity and transparency's sake I decided the VG index funds were better for me. And seriously, does anybody really care about a couple of hundredths difference over a 10 or 20 year period? That's not something that makes or breaks an investment, it's just bragging rights.

I'm sure that over the past 5 or 10 years there are a number of funds that beat the indexes. But since I'm not worried about beating them, I don't try to find them. As far as posting accurate or inaccurate information, well there's far more inaccurate info out in the investing media than we ever run across here. No matter what, an investor needs to know what they are buying. Caveat emptor. If they can be swayed by manipulative advertising, it's too bad. Hopefully they'll learn over time. Most won't.

Actually, no matter who is correct in this argument, just the fact that there is the argument is good for novice investors. Maybe they'll do some research on their own to decide who is right, learning more in the process.

 

[flintnational]

Nothing. New Economy, Amcap, and Growth Fund of America beat the index for last 3, 5, and 10 years.

See my post #64. Per the chart supplied by American Funds from the ad mentioned by the OP, Amcap and Growth Fund of American did not beat the index in the 5 or 10 year periods with or without sales fees.

Correction: The Growth Fund does beat at 5 years and Amcap does beat at 10 years without fees but neither beats with fees.

 

[flintnational]

Just out of curiosity, how long have investors been able to buy American Funds funds without a sales charge or advisor? Does that stretch back beyond the 5 or 10 year periods listed?............

I am not sure. There are posts at Bogleheads in late 2016 mentioning the "new" American Fund arrangements to offer funds at Schwab and Fidelity without having to go through an advisor.

 

[MRG]

I am not sure. There are posts at Bogleheads in late 2016 mentioning the "new" American Fund arrangements to offer funds at Schwab and Fidelity without having to go through an advisor.

That's my understanding in '16 they created three no-load funds available through standard channels.

 

[harley]

That's my understanding in '16 they created three no-load funds available through standard channels.

So doing the comparison without counting the fees and loads isn't accurate yet. And won't be for at least 3 more years. Thanks, that helps in comparing apples to apples.

 

[Qs Laptop]

See my post #64. Per the chart supplied by American Funds from the ad mentioned by the OP, Amcap and Growth Fund of American did not beat the index in the 5 or 10 year periods with or without sales fees.

Correction: The Growth Fund does beat at 5 years and Amcap does beat at 10 years without fees but neither beats with fees.

New Economy and Growth Fund beat both VFINX and VTSMX at 5 years without a load; Amcap beat VTSMX without a load at 5 years.

New Economy with a load beats VFINX in 10 years.

New Economy and Amcap without a load beats both VFINX and VTSMX in 10 years.

 

[Qs Laptop]

So doing the comparison without counting the fees and loads isn't accurate yet. And won't be for at least 3 more years. Thanks, that helps in comparing apples to apples.

There are no fees other than the load. The load varies depending on the amount invested.

Less than $50,000, load is 5.75%
$50,000 to $100,000, load is 4.25%
$100,000 to $250,000, load is 3.5%

In my case I was over $100,000 so at the 3.5% break point. For me, I beat the indexes with my investments in New Economy and Amcap since I got into them in 2009, 2010, and 2013.

 

[OldShooter]

@Qslaptop (and other excited folks), I think that there is a disconnect in basic assumptions here. Let me offer you some information:

Semiannually, S&P publishes two reports looking at the performance of actively managed funds like American's. The SPIVA report extensively covers the performance of funds against their benchmarks. (https://us.spindices.com/documents/spiva/spiva-us-mid-year-2017.pdf?force_download=true) The numbers vary a little bit from report to report, but the conclusion is always the same: Few active funds outperform; over short periods more of them do but over 5- and 10-year periods only a tiny fraction do. William Sharpe's paper (https://web.stanford.edu/~wfsharpe/art/active/active.htm) gives the mathematical basis for this result. It's an easy read, but Ken French's video (https://famafrench.dimensional.com/videos/is-this-a-good-time-for-active-investing.aspx) recaps the Sharpe paper in five minutes.

"Fine," you say, "I understand that most funds underperform, but I am only going to invest in funds that are above-benchmark performers."

Now comes the second S&P report, analyzing manager persistence. (https://us.spindices.com/documents/spiva/persistence-scorecard-december-2017.pdf?force_download=true) Every semiannual report comes to the same conclusion: Past manager performance is not useful in predicting future results. Again, Ken French explains this (https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx) in six minutes.

I am 99.99% certain that there is no statistical evidence that challenges the S&P results. If there were, the plethora of active management advocates would be pounding us over the head with it. Instead, we get cherry-picked "results" that are really no more than anecdotes. (And the plural of "anecdote" is not "data.") We also get a lot of arm-waving about the moral evils of indexing and we get people demonstrating a firm grasp of the obvious by pointing out that a passive portfolio will go down with the markets as easily as it goes up. Then comes the claim that actively managed funds will have less downside. That's sometimes true, but at the cost of missing the upside as well. Again, S&P has our back on this: https://us.spindices.com/multimedia-center/do-active-managers-reduce-risk.

Finally to the point: The fact that there are time periods where specific American funds outperform is no surprise The statistics would predict that. From a menu of 16 equity funds, something in the range of 10-20% will outperform over short periods and maybe up to 10% might outperform over 10 years. But ... from that list of 16, can we predict the funds that will outperform in the next five and ten year periods? The Persistence report and Ken French both show us that we can't.

Just for grins, here is a graphic of S&P Persistence results that I use in an investing course that I teach:

I will freely admit that the persistence facts are counter-intuitive, but there is no statistical data that refutes them..

 

[Qs Laptop]

Here is the return tables I used for my calculations.

 

[Chuckanut]

So, how do I know which Am funds to buy today with no-load ( or even a load ) that will beat the total market index 5 years from now? 10 years from now? Or do all or a great majority of Am funds routinely beat the total market index over five and ten years?

Maybe I am missing something, but I still think the results are cherry picked, unless most or all of their 18 or so equity funds routinely beat the index.