American Funds versus Vanguard S and P 500

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fredd
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American Funds versus Vanguard S and P 500

Post by fredd »

The American Funds have a piece on their website that shows how five AF that track the S and P 500 have run circles around the Vanguard Sand P 500 Index fund from the index fund inception in 1976. Were the AF just lucky?

fredd
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Re: American Funds versus Vanguard S and P 500

Post by smitty1515 »

Highly likely they aren't including front end load or higher ER than VGs SP500 fund. There was a recent thread on this and one must read the fine print bc AF is not being transparent until reading fine print....
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Re: American Funds versus Vanguard S and P 500

Post by lack_ey »

smitty1515 wrote:Highly likely they aren't including front end load or higher ER than VGs SP500 fund. There was a recent thread on this and one must read the fine print bc AF is not being transparent until reading fine print....
No, it's after fees but without loads (and not considering tax). There are places to get these funds without loads, so that is reasonable enough. Though over the long run, including the loads wouldn't be a problem for them.

fredd wrote:The American Funds have a piece on their website that shows how five AF that track the S and P 500 have run circles around the Vanguard Sand P 500 Index fund from the index fund inception in 1976. Were the AF just lucky?

fredd
Some amount of luck, probably. More relevantly, you would have been lucky as an investor in 1976 to select AF over other fund companies (though you would have also done better investing in Vanguard's active funds over the S&P 500). Also, the S&P 500 is not a good benchmark for a lot of the funds, and over the full period, it definitely was better to be in smaller caps and value companies overall. So some of the performance differences are more about biased comparisons than solid support of the conclusions they're trying to make you draw. Also obviously they choose the comparisons that show themselves in a more favorable light.

But there's evidence over the long run of mutual fund manager skill on average (before costs), enough data to make a case especially historically that skill plays a role, not just luck.

The problem is that this all describes the past, which is not what you'll get going forward. Furthermore, in the more recent past they've actually not had any advantage. Average skill in the market has been increasing and with all the institutional players these days doing most of the trading, it should take much more to keep outperforming. What I mean to say is that somebody who could generate an average of 2% a year alpha before fees in the 1980s might have a much smaller or even zero or negative edge today, without being any dumber than they were before. Also, with AF specifically they manage so much assets nowadays that they have to spread among multiple submanagers, perhaps invest in larger companies, etc. With more AUM comes more market impact when trading. Structurally it's not the same as before.
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Phineas J. Whoopee
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Re: American Funds versus Vanguard S and P 500

Post by Phineas J. Whoopee »

fredd wrote:The American Funds have a piece on their website that shows how five AF that track the S and P 500 have run circles around the Vanguard Sand P 500 Index fund from the index fund inception in 1976. Were the AF just lucky?

fredd
Does American Funds really have five separate S&P 500 index funds, or are they just showing funds that don't track it, but take more risk (manager-driven) or got luckier (not manager-driven) and happen over the period of time to have had higher return in the past? Is the S&P 500 even an appropriate benchmark for any of them?

How could one company's load-ignored low-cost S&P 500 index fund "run circles" around anybody else's responsibly managed low-cost one? Earn a few basis points from securities lending sure, but run circles?

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Re: American Funds versus Vanguard S and P 500

Post by JFP_SF »

I believe the originator of this thread is referring to this article on the American Funds web site:

https://www.americanfunds.com/individua ... sults.html

The performance shown (they claim) reflects the initial load paid.
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Re: American Funds versus Vanguard S and P 500

Post by Phineas J. Whoopee »

Thanks for the link JFP_SF. It disproves a straw man; to quote them: "The idea that you can't beat the index fund over long periods is a myth".

I've gone further and called it a parody.

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Re: American Funds versus Vanguard S and P 500

Post by Bogle_Feet »

fredd wrote:The American Funds have a piece on their website that shows how five AF that track the S and P 500 have run circles around the Vanguard Sand P 500 Index fund from the index fund inception in 1976. Were the AF just lucky?

fredd
1976!!!! LOL! Completely deceptive to go back that far! The markets are much more efficient now and everybody has access to real time quotes and information. So it's an apples to oranges comparison.

Typically these funds either have an outrageous 5.25% front end sales load and/ or ongoing high fees.
Over the last 10 years the American Funds Growth Fund of America has had an R-squared rating of 93! Anything in the 90's means they're just replicating the benchmarks. That mean you were paying those high fees simply to replicate the benchmarks! There's no way you beat the S&P.
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Re: American Funds versus Vanguard S and P 500

Post by JFP_SF »

Phineas J. Whoopee wrote:Thanks for the link JFP_SF. It disproves a straw man; to quote them: "The idea that you can't beat the index fund over long periods is a myth".

I've gone further and called it a parody.

PJW
I think it's a little more complicated than that. If you look at what they say, they say that actively managed funds that have the following characteristics outperform the index:

1) Have a low expense ratio (They didn't mention portfolio turnover, but I took the time and checked and the 5 funds they highlight have a low turnover)
2) Have managers who are invested in the fund (I don't know how you keep up with that as an investor, but it makes sense)

To that I'd add if you have a strong corporate investment philosophy (so, you are less vulnerable to manager whims) as American Funds does, then you have at least some of the ingredients to beat the index, although I'm sure #1 is the most important factor.

The other key ingredient they leave out is probably taking more risk. That will help you beat an index.

Lastly, I'd just point out that there are more than 30 funds on their site. Run 20 funds and keep your expenses down, and you will probably find a few can beat the s&p 500
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Re: American Funds versus Vanguard S and P 500

Post by jadedfalcons »

My two oldest investments are New Perspective & New Economy from American Funds. NP was opened when I was 10 back in 1991, NE followed in 94. For purposes of numbers, I backtested both of them against the S&P 500 from 1991 to current.

Starting balance was $10,000 in the S&P500, and $9,425 in the two American Funds (assuming you paid the full 5.75% load fee.) My final numbers are slightly off on the S&P, as I just realised that I used Vanguard's investor class instead of the admiral class, so take that into consideration, but:

Final balance CAGR
New Economy: $128,669 10.51%
New Perspective: $128,146 10.49%
S&P500: $119,936 9.96%

Fairly good spread there. The 3/4 Fund Portfolio advocates would probably cringe at my portfolio that's comprised of American Funds, Janus, T Rowe, and Vanguard (but, hey, it's only 20 different investments, guys!), but I can't complain about the returns I've gotten over the years...except for the money I pumped into Janus before that darn tech bubble burst.
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Re: American Funds versus Vanguard S and P 500

Post by Phineas J. Whoopee »

JFP_SF wrote:...
I think it's a little more complicated than that. ...
I think we're in vehement agreement.
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Re: American Funds versus Vanguard S and P 500

Post by JFP_SF »

Phineas J. Whoopee wrote:
JFP_SF wrote:...
I think it's a little more complicated than that. ...
I think we're in vehement agreement.
PJW
Oh, we are, I just wanted to address the specific arguments on their site. They tell a good story :)
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Phineas J. Whoopee
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Re: American Funds versus Vanguard S and P 500

Post by Phineas J. Whoopee »

jadedfalcons wrote:...
Fairly good spread there. The 3/4 Fund Portfolio advocates would probably cringe at my portfolio that's comprised of American Funds, Janus, T Rowe, and Vanguard (but, hey, it's only 20 different investments, guys!), but I can't complain about the returns I've gotten over the years...except for the money I pumped into Janus before that darn tech bubble burst.
Do I understand correctly, that you're telling us about two funds you own that went up more than the S&P 500, but not about eighteen others that didn't? Preferably I'm wrong.
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Re: American Funds versus Vanguard S and P 500

Post by FiveK »

JFP_SF wrote:I believe the originator of this thread is referring to this article on the American Funds web site:

https://www.americanfunds.com/individua ... sults.html

The performance shown (they claim) reflects the initial load paid.
Currently unable to post a screen image, but if one goes to American Funds The Growth Fund of America® Class A (AGTHX) Fund Tax Analysis, clicks "Compare" and enters VTSMX, the Tax-Adjusted Returns show a different story.

Of course, Morningstar's use of the maximum tax bracket rate for any non-qualified dividends is not appropriate for most (would be nice if M* allowed one to enter a rate), but....
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Re: American Funds versus Vanguard S and P 500

Post by lack_ey »

edit: wait never mind, that was already covered
Last edited by lack_ey on Sun Mar 12, 2017 8:21 pm, edited 1 time in total.
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Re: American Funds versus Vanguard S and P 500

Post by jadedfalcons »

Phineas J. Whoopee wrote: Do I understand correctly, that you're telling us about two funds you own that went up more than the S&P 500, but not about eighteen others that didn't? Preferably I'm wrong.
PJW

Honestly, I just took my two oldest investments when I did the comparison, since they also happened to be American Funds (which the title was about) so I didn't feel the need to compare the S&P500 to T Rowe Price or Janus, or other Vanguard funds. Since my other American Funds were opened up in 2006 and later, there isn't as much long term history there. So, if it makes you feel better, preferably, you're wrong :D
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Re: American Funds versus Vanguard S and P 500

Post by Phineas J. Whoopee »

jadedfalcons wrote:...
So, if it makes you feel better, preferably, you're wrong :D
That is a relief. :wink:
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Re: American Funds versus Vanguard S and P 500

Post by StormShadow »

fredd wrote:The American Funds have a piece on their website that shows how five AF that track the S and P 500 have run circles around the Vanguard Sand P 500 Index fund from the index fund inception in 1976. Were the AF just lucky?
How cute.

And since 1976 how many of their other funds have gotten pummelled by the S&P500 after taxes/expense ratios/fees?

How many of their funds have gone belly up and/or merged with other funds?

These are rhetorical questions, because I don't really care what the answer is. If anyone wants to pursue AF, be my guest. As a Boglehead, I think putting your money in mutual funds with high loads and ER is akin to financial suicide.
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Re: American Funds versus Vanguard S and P 500

Post by jadedfalcons »

StormShadow wrote:
fredd wrote:If anyone wants to pursue AF, be my guest. As a Boglehead, I think putting your money in mutual funds with high loads and ER is akin to financial suicide.
I don't disagree with the value of low cost index funds. That's where I'm putting the bulk of my dollars at these days, but realistically even with their higher loads and ER some of their funds, as I showed above, 'some' of the American Funds are still outperforming the S&P500. Bear in mind that my numbers were even based on the full 5.75% load, which once you reach $250k (an amount that I'm sure a fair number of posters on this site have) your load has dropped by over half to 2.5%. At a cool million, it's gone completely.

Though I do think that there are other no load actively managed options out there that are worth looking at first. Personally, I'm using Vanguard for the basic index funds, but T Rowe for my actively managed sector funds since, even with their higher ERs, the ones I'm in seem to rather handily outperform their Vanguard equivalents. I could always be wrong in the future.
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Re: American Funds versus Vanguard S and P 500

Post by StormShadow »

jadedfalcons wrote:
StormShadow wrote:
fredd wrote:If anyone wants to pursue AF, be my guest. As a Boglehead, I think putting your money in mutual funds with high loads and ER is akin to financial suicide.
I don't disagree with the value of low cost index funds. That's where I'm putting the bulk of my dollars at these days, but realistically even with their higher loads and ER some of their funds, as I showed above, 'some' of the American Funds are still outperforming the S&P500. Bear in mind that my numbers were even based on the full 5.75% load, which once you reach $250k (an amount that I'm sure a fair number of posters on this site have) your load has dropped by over half to 2.5%. At a cool million, it's gone completely.
Except that, you've already paid the 5.75% load before you reached $250k and 2.5% load before you reached $1 million.

But hey, if you can dump $1 million all at once at American Funds then great! No more loads! Except, now you're paying $10k in expense ratios. Put that same $1 million in a Vanguard S&P 500 index fund? An ER for a whopping $500.

The predictability of an expense ratio is 100%. The predictability of a return from the stock market is 0%.

The math is really that simple.
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Re: American Funds versus Vanguard S and P 500

Post by TropikThunder »

fredd wrote:The American Funds have a piece on their website that shows how five AF that track the S and P 500 have run circles around the Vanguard Sand P 500 Index fund from the index fund inception in 1976. Were the AF just lucky?

fredd
The five funds they list most certainly do NOT track the S&P 500. In their defense, they don't claim these funds track it, and the linked article is titled "Five American Funds that Beat the First Index Fund’s Lifetime Results" which doesn't imply the track it. As lackey points out, the S&P 500 is not an appropriate benchmark for comparison. Let's take a closer look:
  • - AMRMX American Mutual Fund Class A (5.75% Load, 0.59% ER, 18% t/o): Large Value, 160 holdings from Russell 1000 Value
    - AWSHX Washington Mutual Investors Fund Class A (5.75% Load, 0.58% ER, 30% t/o): Large Value, 161 holdings from Russell 1000 Value
    - AGTHX Growth Fund of America Class A (5.75% Load, 0.66% ER, 31% t/o): Large Growth, 249 holdings from Russell 1000 Growth
    - AMCPX American Funds AMCAP Fund Class A (5.75% Load, 0.67% ER, 31% t/o): Large Growth, 143 holdings from Russell 1000 Growth
    - AIVSX Investment Company of America Class A (5.75% Load, 0.59% ER, 25% t/o): Large Blend, 161 holdings from Russell 1000
Note the two Value funds have significant overlap, as do the two Growth funds.
Let's see what Portfolio Visualizer says for last 10-year CAGR:
  • - AMRMX 6.70%
    - AWSHX 6.49%
    - VIVAX 5.85% (Vanguard Large Value)
    - AGTHX 6.94%
    - AMCPX 7.60%
    - VIGRX 7.99% (Vanguard Large Growth)
    - AIVSX 6.38%
    - VFINX 6.82%
Huh, their two Large Value funds did worse then VFINX but better then the Vanguard Large Value, while their two Growth funds did better but not as good as Vanguard Large Growth. And somehow their Large Blend fund did worst of all. Not sure what all the excitement is about. :twisted:
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Re: American Funds versus Vanguard S and P 500

Post by jadedfalcons »

StormShadow wrote: Except that, you've already paid the 5.75% load before you reached $250k and 2.5% load before you reached $1 million.
Which is why I factored a 5.75% load into the numbers that showed the American Funds not only making up for that, but still managing to outperform the S&P500 in spite of that.
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Re: American Funds versus Vanguard S and P 500

Post by StormShadow »

jadedfalcons wrote:
StormShadow wrote: Except that, you've already paid the 5.75% load before you reached $250k and 2.5% load before you reached $1 million.
Which is why I factored a 5.75% load into the numbers that showed the American Funds not only making up for that, but still managing to outperform the S&P500 in spite of that.
Even a broken clock is right twice a day. ;-)
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Re: American Funds versus Vanguard S and P 500

Post by KeithZz »

Well, in my 401k, American fund R6 has no load of any kind with ER under 0.3. American fund has different class and different rate, not all class has high ER and load.
About performance the trick is if you include market crash into your expectation, include 2008 into expectation, most American fund out perform SP500. If you don't include 2008, SP500 beats almost all American fund. Downtime protection in mind is American fund strength, the downtime protection is also the biggest selling point on American fund website. American fund not just pretend to protect capital better than index. American fund actually delivered their promise in 2008. Believe them to keep delivering what they had before or not, it is a personal decision.
https://www.americanfunds.com/individua ... yth-2.html
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Re: American Funds versus Vanguard S and P 500

Post by juliewongferra »

fredd wrote:Were the AF just lucky?
Less "AF just lucky" and more "just lucky AF"

cheers,
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Re: American Funds versus Vanguard S and P 500

Post by deltaneutral83 »

StormShadow wrote:
fredd wrote: As a Boglehead, I think putting your money in mutual funds with high loads and ER is akin to financial suicide.
I think I can think of a few things that are more closely related to financial suicide than the Active/Passive debate.
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Re: American Funds versus Vanguard S and P 500

Post by ruralavalon »

StormShadow wrote:
fredd wrote:The American Funds have a piece on their website that shows how five AF that track the S and P 500 have run circles around the Vanguard Sand P 500 Index fund from the index fund inception in 1976. Were the AF just lucky?
How cute.

And since 1976 how many of their other funds have gotten pummelled by the S&P500 after taxes/expense ratios/fees?

How many of their funds have gone belly up and/or merged with other funds?

These are rhetorical questions, because I don't really care what the answer is. If anyone wants to pursue AF, be my guest. As a Boglehead, I think putting your money in mutual funds with high loads and ER is akin to financial suicide.
Those would be my questions too.

And how would someone in 1976 have known to pick one of the 5 winners?

And do any of those 5 funds really benchmark to the S&P 500 Index?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Re: American Funds versus Vanguard S and P 500

Post by grabiner »

KeithZz wrote:Well, in my 401k, American fund R6 has no load of any kind with ER under 0.3. American fund has different class and different rate, not all class has high ER and load.
About performance the trick is if you include market crash into your expectation, include 2008 into expectation, most American fund out perform SP500. If you don't include 2008, SP500 beats almost all American fund. Downtime protection in mind is American fund strength, the downtime protection is also the biggest selling point on American fund website.
This may not be an advantage, just the result of cash holdings. For example, AIVSX (Investment Company of America A) currently holds 6.44% in stock and 0.63% in bonds. Therefore, when the stock market drops, it should lose 7% less than the market; that would be a 34.4% loss when the market loses 37.00%. The actual 2008 losses for the fund were 34.73%, which would be 34.34% before expenses. (The very close match is a coincidence; the two value funds in the example lost less even after adjustment, and the two growth funds lost more than the S&P 500 before adjustment.)

The reason that this is not an advantage is that it is something you can do yourself. You can hold 93% of your portfolio in a fully-invested index fund and 7% in bonds and cash, or you can hold an active fund which is 93% in stock and 7% in cash; either way, you will get 93% of the market's ups and down.
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Re: American Funds versus Vanguard S and P 500

Post by KeithZz »

American fund does not always hold 6 plus percent cash. American fund was expecting market down from 2015 and starting hold more cash, they made a mistake obviously and performance was lacking for past 2 years. It is more tend to who makes market timing decision to start cash out assets. If you have to timing the market.
grabiner wrote:
KeithZz wrote:Well, in my 401k, American fund R6 has no load of any kind with ER under 0.3. American fund has different class and different rate, not all class has high ER and load.
About performance the trick is if you include market crash into your expectation, include 2008 into expectation, most American fund out perform SP500. If you don't include 2008, SP500 beats almost all American fund. Downtime protection in mind is American fund strength, the downtime protection is also the biggest selling point on American fund website.
This may not be an advantage, just the result of cash holdings. For example, AIVSX (Investment Company of America A) currently holds 6.44% in stock and 0.63% in bonds. Therefore, when the stock market drops, it should lose 7% less than the market; that would be a 34.4% loss when the market loses 37.00%. The actual 2008 losses for the fund were 34.73%, which would be 34.34% before expenses. (The very close match is a coincidence; the two value funds in the example lost less even after adjustment, and the two growth funds lost more than the S&P 500 before adjustment.)

The reason that this is not an advantage is that it is something you can do yourself. You can hold 93% of your portfolio in a fully-invested index fund and 7% in bonds and cash, or you can hold an active fund which is 93% in stock and 7% in cash; either way, you will get 93% of the market's ups and down.
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Re: American Funds versus Vanguard S and P 500

Post by grabiner »

KeithZz wrote:American fund does not always hold 6 plus percent cash. American fund was expecting market down from 2015 and starting hold more cash, they made a mistake obviously and performance was lacking for past 2 years. It is more tend to who makes market timing decision to start cash out assets. If you have to timing the market.
Going from 2% to 7% cash doesn't make much sense as a market timing move; if you expect the market to have an unusual risk of going down, you should be almost all out of the market.

I also don't think it's what American Funds does. Most actively-managed funds hold some cash, which they use for redemptions and to purchase new stocks. (Index funds use options and futures, so that they have a zero net cash position but still have the cash they need for liquidity.)

And you probably don't want your stock funds to time the market; if you do, there are tactical allocation funds which attempt to do that. You choose multiple funds to get your desired allocation to stocks and bonds, and do not want stock funds to change what you hold in a way which is inappropriate for you.
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Re: American Funds versus Vanguard S and P 500

Post by FiveK »

FiveK wrote:Currently unable to post a screen image, but if one goes to American Funds The Growth Fund of America® Class A (AGTHX) Fund Tax Analysis, clicks "Compare" and enters VTSMX, the Tax-Adjusted Returns show a different story.
Image posting is working again:
Image
Last edited by FiveK on Thu Aug 30, 2018 1:27 pm, edited 1 time in total.
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Re: American Funds versus Vanguard S and P 500

Post by in_reality »

jadedfalcons wrote:My two oldest investments are New Perspective & New Economy from American Funds. NP was opened when I was 10 back in 1991, NE followed in 94. For purposes of numbers, I backtested both of them against the S&P 500 from 1991 to current.

Starting balance was $10,000 in the S&P500, and $9,425 in the two American Funds (assuming you paid the full 5.75% load fee.) My final numbers are slightly off on the S&P, as I just realised that I used Vanguard's investor class instead of the admiral class, so take that into consideration, but:

Final balance CAGR
New Economy: $128,669 10.51%
New Perspective: $128,146 10.49%
S&P500: $119,936 9.96%

Fairly good spread there. The 3/4 Fund Portfolio advocates would probably cringe at my portfolio that's comprised of American Funds, Janus, T Rowe, and Vanguard (but, hey, it's only 20 different investments, guys!), but I can't complain about the returns I've gotten over the years...except for the money I pumped into Janus before that darn tech bubble burst.
Did you pay taxes on that? If it's in taxable, American Funds will have much, much higher yearly capital gains to pay.
FiveK wrote:
FiveK wrote:Currently unable to post a screen image, but if one goes to American Funds The Growth Fund of America® Class A (AGTHX) Fund Tax Analysis, clicks "Compare" and enters VTSMX, the Tax-Adjusted Returns show a different story.
Image posting is working again:
Image
That looks right to me. I had AGTHX in taxable and it didn't bother me sometimes. Sometimes there were years when 10 or 15% capital gains were issued (AGTHX or other American fund - I forget but yeah I paid it).
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Re: American Funds versus Vanguard S and P 500

Post by JBTX »

Reviving this thread because it is applicable to me. I have been evaluating small company 401ks for friend and I keep hearing from providers how wonderful American Funds are. I do recall that over the very long term their performance has been good, but I wasn't really sure how recent performance fared. I went to Morningstar and did some research. I decided to use a 15 year term, because it encompasses a large downturn and a subsequent upturn - but it is recent enough to ignore ancient history when the funds were probably smaller and the markets somewhat different.

S&P index vs AF Large Blend:

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

S&P has a small edge over 15 years. S&P has a bit bigger edge over 10 years. AFLB does beat the fund category average

AF Balanced vs Vanguard Balanced Index

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

Over 15 years their performance is nearly identical. I suspect it is because post 2009 they increases their equity allocation modestly. They do have the latitude to tweak it up and down.

Wellington blows it away, but in fairness Wellington is approx 66% equity vs the 60% range for AFB and VBalanced.

AF Large Value vs Vanguard value index:

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

They are pretty close. AF lags just a hair. AF seemed to weather 2008/2009 slightly better but index has caught up.

AF Growth fund of america:

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D


AFGFA tracks very close to the index.

Contrafund does significantly better - I only included it because I have had contrafund for decades.





AF Global blend vs Vanguard Target date moderate growth.

I chose the vanguard target date moderate because the current asset class allocations appear pretty comparable

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D


Vanguard life strategy does modestly better.

Edit: this one only goes back to 2011

My overall conclusions:

AF in recent years does NOT typically beat comparable index fund benchmarks, although they are usually pretty close

AF does seem to consistently beat the Morningstar category averages.

All of the above include ongoing fees, but exclude any front end loads.

In some 401k plans I think you can get AF funds at slightly lower expense ratios than the ones I have quoted.
Last edited by JBTX on Thu Aug 30, 2018 2:01 pm, edited 1 time in total.
carofe
Posts: 390
Joined: Thu Mar 20, 2014 7:21 pm

Re: American Funds versus Vanguard S and P 500

Post by carofe »

I have to say that much of its outperformance is due to avoiding the big crash of the 2000. In fact, in an interview, one of their managers said that most of the outperform they got can be attributed to the ability of avoiding stock market madness as they did in 2000.
On the side note, they not only failed to avoid the 2008 crash but also crashed harder than other funds because their bond funds didn't communicate effectively with the sock funds people inside their company.
When valuation go into madness like in 2000, you have to proceed with caution and probably reduce your exposure to stocks until the P/E goes to acceptable levels (I didn't say "cheap").
US Total Stock Market + Intermediate Term Bond. That's it.
deltaneutral83
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Joined: Tue Mar 07, 2017 3:25 pm

Re: American Funds versus Vanguard S and P 500

Post by deltaneutral83 »

JBTX wrote: Thu Aug 30, 2018 1:11 pm Reviving this thread because it is applicable to me. I have been evaluating small company 401ks for friend and I keep hearing from providers how wonderful American Funds are. I do recall that over the very long term their performance has been good, but I wasn't really sure how recent performance fared. I went to Morningstar and did some research. I decided to use a 15 year term, because it encompasses a large downturn and a subsequent upturn - but it is recent enough to ignore ancient history when the funds were probably smaller and the markets somewhat different.


Vanguard life strategy does modestly better.

My overall conclusions:

AF in recent years does NOT typically beat comparable index fund benchmarks, although they are usually pretty close

AF does seem to consistently beat the Morningstar category averages.

All of the above include ongoing fees, but exclude any front end loads.

In some 401k plans I think you can get AF funds at slightly lower expense ratios than the ones I have quoted.
AF has done average the past 15 years but their ten year returns are below their appropriate benchmarks, and this of course doesn't take into account loads or taxes if in a taxable account, only the ER is incoporated. The returns are easily accessible on their website (the classic 8 funder of : AMCPX, AIVSX, AGTHX, AMRMX, CWGIX, ANWPX, NEWFX, SMCWX, comes out to 70/30 Domestic/Intl). The advantages they enjoyed from 1976-1982 or whatever it was will not help you one iota today for a myriad of reasons.
JBTX
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Joined: Wed Jul 26, 2017 12:46 pm

Re: American Funds versus Vanguard S and P 500

Post by JBTX »

carofe wrote: Thu Aug 30, 2018 1:28 pm I have to say that much of its outperformance is due to avoiding the big crash of the 2000. In fact, in an interview, one of their managers said that most of the outperform they got can be attributed to the ability of avoiding stock market madness as they did in 2000.
On the side note, they not only failed to avoid the 2008 crash but also crashed harder than other funds because their bond funds didn't communicate effectively with the sock funds people inside their company.
When valuation go into madness like in 2000, you have to proceed with caution and probably reduce your exposure to stocks until the P/E goes to acceptable levels (I didn't say "cheap").
Chalk it up to luck, but I personally fared better in 2000 and subsequent years because I had a much heavier allocation of small caps, small cap value, REITS and international. However, I probably did worse in 2007/2008 than average because I was underweighted in bonds, and much of my bonds were TIPS.

So what I once attributed to personal skill I now chalk up to luck. Same can probably be said for AF. I imagine any broadly diversified fund did better than the indexes in 2000..

Seems to me their performance 2007/2008 was pretty comparable to the index

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D
carofe
Posts: 390
Joined: Thu Mar 20, 2014 7:21 pm

Re: American Funds versus Vanguard S and P 500

Post by carofe »

JBTX wrote: Thu Aug 30, 2018 1:51 pm
carofe wrote: Thu Aug 30, 2018 1:28 pm I have to say that much of its outperformance is due to avoiding the big crash of the 2000. In fact, in an interview, one of their managers said that most of the outperform they got can be attributed to the ability of avoiding stock market madness as they did in 2000.
On the side note, they not only failed to avoid the 2008 crash but also crashed harder than other funds because their bond funds didn't communicate effectively with the sock funds people inside their company.
When valuation go into madness like in 2000, you have to proceed with caution and probably reduce your exposure to stocks until the P/E goes to acceptable levels (I didn't say "cheap").
Chalk it up to luck, but I personally fared better in 2000 and subsequent years because I had a much heavier allocation of small caps, small cap value, REITS and international. However, I probably did worse in 2007/2008 than average because I was underweighted in bonds, and much of my bonds were TIPS.

So what I once attributed to personal skill I now chalk up to luck. Same can probably be said for AF. I imagine any broadly diversified fund did better than the indexes in 2000..

Seems to me their performance 2007/2008 was pretty comparable to the index

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

I was actually referring to the The Bond Fund of America in 2008:
https://quotes.morningstar.com/chart/fu ... 2%3A955%7D

Yeah their stock funds did just as good as the rest in 2008.
US Total Stock Market + Intermediate Term Bond. That's it.
JBTX
Posts: 11228
Joined: Wed Jul 26, 2017 12:46 pm

Re: American Funds versus Vanguard S and P 500

Post by JBTX »

carofe wrote: Thu Aug 30, 2018 6:37 pm
JBTX wrote: Thu Aug 30, 2018 1:51 pm
carofe wrote: Thu Aug 30, 2018 1:28 pm I have to say that much of its outperformance is due to avoiding the big crash of the 2000. In fact, in an interview, one of their managers said that most of the outperform they got can be attributed to the ability of avoiding stock market madness as they did in 2000.
On the side note, they not only failed to avoid the 2008 crash but also crashed harder than other funds because their bond funds didn't communicate effectively with the sock funds people inside their company.
When valuation go into madness like in 2000, you have to proceed with caution and probably reduce your exposure to stocks until the P/E goes to acceptable levels (I didn't say "cheap").
Chalk it up to luck, but I personally fared better in 2000 and subsequent years because I had a much heavier allocation of small caps, small cap value, REITS and international. However, I probably did worse in 2007/2008 than average because I was underweighted in bonds, and much of my bonds were TIPS.

So what I once attributed to personal skill I now chalk up to luck. Same can probably be said for AF. I imagine any broadly diversified fund did better than the indexes in 2000..

Seems to me their performance 2007/2008 was pretty comparable to the index

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

I was actually referring to the The Bond Fund of America in 2008:
https://quotes.morningstar.com/chart/fu ... 2%3A955%7D

Yeah their stock funds did just as good as the rest in 2008.

Ouch! Reading up on it they were about 20% junk before the crash. So much for their market mojo.
kmurp
Posts: 416
Joined: Fri Jun 01, 2007 1:53 pm

Re: American Funds versus Vanguard S and P 500

Post by kmurp »

One thing to remember is that in a 401k one usually doesn’t pay a load and there’s no tax drag. If you’re lucky you will also have access to a lower ER share class. One could do much worse than this company though they did hurt people with their bond fund in 08.
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