Investors in the mutual funds of Capital Research & Management appear to have taken notice of the funds being beaten by more than half of their peers in 2008 and 2009, as redemptions are coming in at the fastest pace the company has seen in its 79-year history. Last year alone, the company was hit with $25.5 billion in redemptions, and in the previous year, $16 billion.
Although the $1.18 trillion firm’s American Funds was the best-selling mutual fund family for years following the dot-com crash and the fund trading scandal, since it remained largely unscathed by the litigation, the company is experiencing a reversal of fortune.
Capital Research Chairman James Rothenberg notes how the flagship, $149.3 billion Growth Fund of America delivered an average annual return of 10.7% over the past 15 years, compared with the S&P 500’s 8%, and over the past decade, the fund rose 2.3%, while the S&P lost 0.95%.
“It’s a matter of whether you believe the people you put your money with can deliver,” Rothenberg told Bloomberg Markets magazine. “I think history shows, including all the bad stuff, that we’ve delivered.”
Unlike competitors that are coming out with tactical-allocation solutions and low-cost alternatives such as exchange-traded funds, as well as bond funds, a best-seller of the past year, Capital Group is sticking to the long-held premise of telling investors to trust mutual fund managers to traditional asset allocation, Rothenberg said. In addition, the company continues to sell its team-managed funds through advisers, and its fund lineup remains concentrated on equity funds.
“There are a lot of things we could do to grow sales, but we won’t do them,” he said.
The challenges of the past two years, however, forced Capital Group to lay off 1,300 workers, or 14% of its workforce, last year, including a number of portfolio managers for poor performance. And as a new tactic, Capital Group is pursuing small- to medium-sized 401(k)s.