American Funds seems to be on a fee-cutting spree. Capital Research & Management Co., which runs American Funds, has reduced the fees it charges investors for managing each of its stock and bond mutual funds, or advisory fees, by 10%.
Last August, the firm cut advisory fees by 5%, and last week the firm presented a plan to its fund board to slash fees by another 5%. Investors stand to gain savings of at least $200 million from the combined fee reductions.
The fee cuts come at a time when American Funds is flourishing in more ways than one, Dow Jones reports. Investors gave assets at American Funds, sold through financial advisers, a major boost when they embraced its conservative investing approach in the aftermath of the 2000 stock market collapse. For the past five years, half of American Funds' portfolios have ranked among the top 25% of their peers in terms of performance, and for the past decade, nearly three-quarters are in the top quartile, according to Morningstar.
For the past two years, American Funds has been named the top-selling overall fund company, attracting $83.7 billion in new money last year, nearly seven times that of its nearest broker-sold competitor. Today, the company has roughly $700 billion in assets in 26 stock and bond funds.
Still, the fee reductions, which aren't permanent but will be in place indefinitely, come as somewhat of surprise. An across-the-board fee waiver is "highly unusual," said Jeffrey Keil, a vice president at fund tracker Lipper. Also, American Funds' fees were already well below those of its competitors. For instance, its stock funds, which make up the most of its money under management, charge an average management fee of 0.37% of assets, while the average stock fund charges 0.75%, according to Lipper.
Mutual fund investors are increasingly clamoring for lower fees. Paul Haaga, chairman of the executive committee at Capital, said the fee cuts are a response to the massive asset inflow that the company has experienced. For instance, the management fee on the company's largest fund, the $95 billion Growth Fund of America, has been lowered to just under 0.25% of assets from about 0.29%.