American Funds beat out Vanguard Index over lifetime?

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ole luna patoona
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American Funds beat out Vanguard Index over lifetime?

Post by ole luna patoona » Sat May 13, 2017 8:56 am

Greetings,
I have read lots of previous forums on Bogleheads. This however, is my first post. I recently read this website: https://www.americanfunds.com/individua ... m_fb_10224

It is from American Funds website and they say they have consistently beat the Vanguard index since 1976. I know the expense ratio's are slightly different, but both under 1%. How could one justify investing in one fund over the other?

Thank you for any help you could offer me.

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nedsaid
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Re: American Funds beat out Vanguard Index over lifetime?

Post by nedsaid » Sat May 13, 2017 12:39 pm

Go to Morningstar and compare the various funds from the American Funds group against the S&P 500. Let's pick American Funds Growth A compared to Vanguard 500 Index Admiral.

American Funds Growth A
1 year 22.58%
3 years 11.18%
5 years 15.28%
10 years 7.36%
15 years 8.75%

American Funds Income Fund of America Class A (75% stocks/25% bonds and cash)
1 year 10.81%
3 years 5.57%
5 years 9.41%
10 years 5.25%
15 years 7.31%

Vanguard 500 Index Admiral
1 year 18.26%
3 years 10.30%
5 years 14.44%
10 years 7.01%
15 years 7.77%

Note that the Class A funds have a 5.75% load. If you compare American Funds Growth vs. Vanguard Index 500, you can see that American Funds does beat Vanguard but the results do not include the
sales load. It appears that American Growth would have beaten the Index 500 over 15 years even taking into consideration the sales load.

The comparison between Index 500 and Income Fund of America is unfair because the latter fund has 25% bonds and cash. The 15 year records though are pretty close.

All I took was compared the Vanguard Index 500 Admiral fund with the two largest mutual funds offered by the American Funds Group. Just eyeballing tells you that the American Fund managers did a good job.

Go to Morningstar and compare to your heart's content.
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dm200
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Re: American Funds beat out Vanguard Index over lifetime?

Post by dm200 » Sat May 13, 2017 12:47 pm

Of course, this is all picking the funds NOW that have outperformed the Vanguard Index - not a fair comparison.

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nedsaid
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Re: American Funds beat out Vanguard Index over lifetime?

Post by nedsaid » Sat May 13, 2017 12:50 pm

The other thing I can tell you is that I own an International Stock fund from American Funds in a workplace savings plan and a World Allocation Fund from American Funds in a Roth IRA. Both are rated 4 stars by Morningstar. American Funds are good funds in a good fund group.

Below is an article written by Larry Swedroe analyzing the performance of American Funds. He gives them good marks.

https://www.advisorperspectives.com/art ... erformance
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Re: American Funds beat out Vanguard Index over lifetime?

Post by Dottie57 » Sat May 13, 2017 1:00 pm

The problem with American funds is the financial planners who use them.

I was invested in multiple AF funds (income, balance and growth plus others). There was duplication of stocks across the funds. And I didn't really understand what I was invested in. I wasn't as diversified as I am now. The financial planner produced voluminous reports which I did not understand. And the front end load really helps feed the financial planner.

Simple index funds work better for me. I understand what I own and fees are low.

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nedsaid
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Re: American Funds beat out Vanguard Index over lifetime?

Post by nedsaid » Sat May 13, 2017 1:05 pm

Here is my take on American Funds. They are a good fund group. There are many worse things you can do with your money than go to an advisor, buy American Funds for your portfolio, and pay the loads. If you did this and held those funds for a long time, you would be pleased with the results. These funds have relatively low expense ratios compared to the rest of the industry.

The thing is, the load you pay is a permanent drag on your investment performance. For their Class A shares offered through commissioned based investment advisors, you pay 5.75% for their stock funds and 3.75% for their bond funds. You could get similar funds at Vanguard with no sales charge and even lower expense ratios.

American Funds are often offered on a no-load basis through 401k plans and sometimes at an even lower expense ratio than their A class shares. I also noticed that Fidelity Brokerage had no-load classes of certain funds from American available. If you could purchase these no-load, they are worthwhile of consideration. Even better would be to go to Vanguard and buy similar and cheaper funds through them. Even better than that are the ultra cheap Index Funds offered by Vanguard.
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Re: American Funds beat out Vanguard Index over lifetime?

Post by CFM300 » Sat May 13, 2017 1:31 pm

nedsaid wrote:Note that the Class A funds have a 5.75% load. If you compare American Funds Growth vs. Vanguard Index 500, you can see that American Funds does beat Vanguard but the results do not include the sales load.
The site states:

"American Funds returns ... reflect deduction of the 5.75% maximum sales charge at the beginning of the period shown."

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Re: American Funds beat out Vanguard Index over lifetime?

Post by CFM300 » Sat May 13, 2017 1:33 pm

dm200 wrote:Of course, this is all picking the funds NOW that have outperformed the Vanguard Index - not a fair comparison.
The site states that the funds shown are "the five U.S.-focused American Funds available when [Vanguard's S&P 500 Index Fund was] launched."

So there doesn't seem to be any cherry-picking or survivorship bias.

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nedsaid
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Re: American Funds beat out Vanguard Index over lifetime?

Post by nedsaid » Sat May 13, 2017 3:40 pm

CFM300 wrote:
nedsaid wrote:Note that the Class A funds have a 5.75% load. If you compare American Funds Growth vs. Vanguard Index 500, you can see that American Funds does beat Vanguard but the results do not include the sales load.
The site states:

"American Funds returns ... reflect deduction of the 5.75% maximum sales charge at the beginning of the period shown."
I am citing Morningstar and not the American Funds website.
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Re: American Funds beat out Vanguard Index over lifetime?

Post by selters » Sat May 13, 2017 4:53 pm

I'm sure they did. That's why they are still in business, and not their former competitors. That's why this thread is about American Funds, and not about their competitors, who did not outperform. It's called survivorship bias. Survivorship bias can take place on the level of fund families, too, not only for individual funds.

Of course, this is a very cynical way of looking at it. Using the same logic, one would dismiss Warren Buffet as merely a statistical outlier that one would expect from millions of investors and 50 years of random gambling in the stock market.
Last edited by selters on Sat May 13, 2017 5:07 pm, edited 1 time in total.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by kenner » Sat May 13, 2017 4:54 pm

ole luna patoona wrote:Greetings,
I have read lots of previous forums on Bogleheads. This however, is my first post. I recently read this website: https://www.americanfunds.com/individua ... m_fb_10224

It is from American Funds website and they say they have consistently beat the Vanguard index since 1976. I know the expense ratio's are slightly different, but both under 1%. How could one justify investing in one fund over the other?

Thank you for any help you could offer me.
To some extent, it depends. Will this investment be held in a taxable or tax-deferred account?

Will you be paying the 5.75% up-front sales load fee? American funds own statistics reveal that it can take a decade or longer for an American Funds load fund to catch up to the returns of a relevant index.

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JoMoney
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Re: American Funds beat out Vanguard Index over lifetime?

Post by JoMoney » Sat May 13, 2017 5:54 pm

Ignoring the loads on the funds, a lot of the American funds that have survived have outperformed (they seem to forget about their funds that they closed for poor performance... so there is a 'Survivorship Bias').
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

TX_Man
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Re: American Funds beat out Vanguard Index over lifetime?

Post by TX_Man » Sat May 13, 2017 6:01 pm

I don't doubt that there are actively managed funds that beat the index. I haven't seen any stories that say 100% of actively managed funds fail to beat the index. However, the oft-repeated statistic that over 80% of actively managed funds fail to beat the index is reason enough for me to go with the index. I'm not going to rely on a 1 out of 5 guess to select the correct fund.

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Earl Lemongrab
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Re: American Funds beat out Vanguard Index over lifetime?

Post by Earl Lemongrab » Sat May 13, 2017 6:09 pm

This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by TropikThunder » Sat May 13, 2017 6:22 pm

ole luna patoona wrote:Greetings,
I have read lots of previous forums on Bogleheads. This however, is my first post. I recently read this website: https://www.americanfunds.com/individua ... m_fb_10224

It is from American Funds website and they say they have consistently beat the Vanguard index since 1976. I know the expense ratio's are slightly different, but both under 1%. How could one justify investing in one fund over the other?

Thank you for any help you could offer me.
Unsurprisingly, this has been discussed a couple times here already (not criticizing for not seeing the earlier threads):
viewtopic.php?t=213980
viewtopic.php?f=1&t=213567&p=3278587&hi ... n#p3278587
https://www.google.com/search?sitesearc ... beat+s%26p

My critique then:
TropikThunder wrote:
dawghall wrote: Would you guys more familiar than I with the index funds and the tricks mutual fund pushers use give a rebuttal to these charts. I know they are blowing a lot of smoke, but I'd like some wiser eyes to explain it so I can shut him up! Thanks, and have no mercy
It's intellectually dishonest for an advisor to claim his fund outperforms the S&P500 when his fund doesn't track the S&P500, it's apples to oranges. AGTHX Growth Fund of America Class A is a Large Growth fund that holds 249 stocks, vs VFINX Vanguard S&P500 which holds the entire index (510 stocks). My rebuttal:
1. AGTHX is Large Growth. Sometimes Growth beats Value, some times vice versa. Growth beat Value over the last 10 years, so it's not surprising that a Large Growth fund beat the S&P500 (which is a Blend). In fact, Vanguard's Large growth fund did too, even more so then the AF fund. Meanwhile Large Value lagged the S&P 500, including AF's Large Value funds. See Callan Periodic Table of Returns https://www.bogleheads.org/wiki/Callan_ ... nt_returns.
2. How can you (EJ guy) be so confident that Growth will continue to outperform Blend or Value going forward? You can't.
3. Even if you could guarantee that Growth will outperform, why shouldn't I choose Vanguard's Large Growth Fund VIGRX (0.18% ER, no load) instead of your AGTHX (0.66% ER, 5.75% load). VIGRX has outperformed AGTHX 7.99% to 6.94% CAGR in the last 10 years.

10 year CAGR comparison (I'm less convinced by head-to-head comparisons longer then 10 years because an early run-out by one fund is very difficult to overcome, and we're not talking about what we should have done in 1976):
- AMRMX American Mutual Fund Class A (Large Value) 6.70%
- AWSHX Washington Mutual Investors Fund Class A (Large Value) 6.49%
- VIVAX Vanguard Large Value 5.85%
- AGTHX Growth Fund of America Class A (Large Growth) 6.94%
- AMCPX American Funds AMCAP Fund Class A (Large Growth) 7.60%
- VIGRX Vanguard Large Growth 7.99%
- AIVSX Investment Company of America Class A (Large Blend) 6.38%
- VFINX Vanguard S&P 500 (Large Blend) 6.82%
Note those numbers are from Portfolio Visualizer and do NOT include the loads, but they do include the ER's .

CFM300
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Re: American Funds beat out Vanguard Index over lifetime?

Post by CFM300 » Sat May 13, 2017 7:04 pm

JoMoney wrote:Ignoring the loads on the funds, a lot of the American funds that have survived have outperformed (they seem to forget about their funds that they closed for poor performance... so there is a 'Survivorship Bias').
Where can one find a list of American funds that have been closed?

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Re: American Funds beat out Vanguard Index over lifetime?

Post by knpstr » Sat May 13, 2017 7:25 pm

these are the funds EJ pushes (or used to? don't know now)
also I remember hearing/reading somewhere dave ramsey uses american funds.

Interesting that they seem okay as far as expensive funds go. Though the EJ killer isn't really the american funds it is the guided advisory or whatever they call they coax you into that charges an extra 1% or 2% fee per year.
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JoMoney
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Re: American Funds beat out Vanguard Index over lifetime?

Post by JoMoney » Sat May 13, 2017 9:55 pm

CFM300 wrote:
JoMoney wrote:Ignoring the loads on the funds, a lot of the American funds that have survived have outperformed (they seem to forget about their funds that they closed for poor performance... so there is a 'Survivorship Bias').
Where can one find a list of American funds that have been closed?
That's a good question, for which I don't have a good (free) answer. There are survivorship bias free databases of mutual funds, CRSP has one, but access to it costs. You could probably find info on mutual funds over the past 20 years, even failed ones, via the SEC EDGAR database... but you would have to know the fund names to start with. There are lots of studies with data for the broad mutual fund market showing the huge numbers that don't survive, but I'm not aware of any for a particular fund company like American Funds.
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Re: American Funds beat out Vanguard Index over lifetime?

Post by jalbert » Sat May 13, 2017 10:19 pm

dm200 wrote:Of course, this is all picking the funds NOW that have outperformed the Vanguard Index - not a fair comparison.
Correct. If 30 people roll dice 15 times and add up the results, somebody will win. Pointing out who won after the fact is trivial. American Funds products are good products if you can get them without a load and at reasonable cost. But their marketing is very deceptive. They have lots of different funds. Their marketing materials never tell you about the ones that fall short of their reference index. And they do not commit to a reference benchmark at the start of the evaluation period. This is not unique to American Funds, but is pervasive behavior throughout the mutual fund industry.
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Re: American Funds beat out Vanguard Index over lifetime?

Post by cheapskate » Sat May 13, 2017 10:28 pm

If one can buy the F-3 shares for American Funds (no load, no 12b-1 fees), that would be a good choice for investors who must do active. I randomly looked at 2 of their funds' F-3 shares, and the ER was 0.30%. One could certainly do a lot worse than that, given the other good traits of AF (team management, significant investment by managers into the funds they run, long term track record etc).

The problem is, I don't believe F-3 shares are available for purchase at Schwab or Fidelity. F-1 shares are available, but that share class includes a 0.25% 12b-1 fees, makes no sense to pay 12b-1 fees.

American Funds got some work to do to here, to make their F-3 shares available to the wider audience. I suspect that move would rub the Advisor community AF depends on the wrong way :(

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JoMoney
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Re: American Funds beat out Vanguard Index over lifetime?

Post by JoMoney » Sat May 13, 2017 10:34 pm

jalbert wrote:...And they do not commit to a reference benchmark at the start of the evaluation period. This is not unique to American Funds, but is pervasive behavior throughout the mutual fund industry.
If I was going to buy an active fund, it would be for the ability of the manager, not because I wanted to commit to a particular style. This sort of manager risk though is a risk, and I don't know how to judge if a manager really knows what they're doing, or just had a lucky break to be in the right area at the right time. I don't want to invest in risks that are 'coin flips', even less so in things that have negative expectations, and simple arithmetic as well as every empirical study of active mutual funds shows picking active funds to have negative expected value.
FWIW, American Funds can show a lot of style drift:
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Re: American Funds beat out Vanguard Index over lifetime?

Post by zeugmite » Sat May 13, 2017 10:47 pm

jalbert wrote:
dm200 wrote:Of course, this is all picking the funds NOW that have outperformed the Vanguard Index - not a fair comparison.
Correct. If 30 people roll dice 15 times and add up the results, somebody will win. Pointing out who won after the fact is trivial. American Funds products are good products if you can get them without a load and at reasonable cost. But their marketing is very deceptive. They have lots of different funds. Their marketing materials never tell you about the ones that fall short of their reference index. And they do not commit to a reference benchmark at the start of the evaluation period. This is not unique to American Funds, but is pervasive behavior throughout the mutual fund industry.
I've also noticed many funds report their growth of hypothetical $10000 performance without including expenses, which seems extremely deceptive. I mean, it's already in the past, they know how much expenses were charged. What's the point of reporting some growth performance (often beating the benchmark) that cannot be obtained by anyone investing in that fund?

For this and other reasons everyone should resort to generating their own performance numbers from public quotes.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by pingo » Sat May 13, 2017 11:09 pm

American funds are well-managed and their managers eat their own cooking. I actually like them...

...but I really hate the fact that there are several iterations of each fund and most of them have loads or higher expense ratios than I like. Even if I knew for a fact that going forward an American Fund would continue to beat a comparable low cost index fund, I probably wouldn't pay a load and/or high expense ratio to invest in the fund because I am still a risk: what if I am unable to hold the fund for the necessary period to overcome the disadvantage?

While I can't bring myself to pay a 5.74% load, I have gladly recommend some people use American Funds in their 401ks, based on what makes the most sense to manage their portfolio. Whether or not American continues to edge out benchmarks over the long haul, their funds will do the job they're supposed to do.
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Re: American Funds beat out Vanguard Index over lifetime?

Post by munemaker » Sat May 13, 2017 11:16 pm

ole luna patoona wrote:
It is from American Funds website and they say they have consistently beat the Vanguard index since 1976. I know the expense ratio's are slightly different, but both under 1%.
Of the thousands of investment companies out there, why would American Funds be comparing their fund to the Vanguard S&P 500 index fund?

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Re: American Funds beat out Vanguard Index over lifetime?

Post by jadedfalcons » Sun May 14, 2017 5:41 am

I posted this on another American Funds thread a couple months ago:

"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%"

I've done quite well over the years with those two investments. I will say that the definite downside is the capital gains hits, so figure that their investments are fine within the tax sheltered investments, but my contributions to taxable accounts are pretty much just index funds these days.

The other thing is that their load goes down. For example, thanks to account aggregation, I'm at the 1.5% load level, and only need another 50-60k to go to free investing with them.

Looking at my numbers, it looks like six of my nine American Fund accounts have outperformed the S&P500 so far this year. Two of them have returned more than double the S&P500. The three that haven't, I wouldn't have expected them to since they hold bonds as well.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by nedsaid » Sun May 14, 2017 10:59 am

jadedfalcons wrote:I posted this on another American Funds thread a couple months ago:

"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%"

I've done quite well over the years with those two investments. I will say that the definite downside is the capital gains hits, so figure that their investments are fine within the tax sheltered investments, but my contributions to taxable accounts are pretty much just index funds these days.

The other thing is that their load goes down. For example, thanks to account aggregation, I'm at the 1.5% load level, and only need another 50-60k to go to free investing with them.

Looking at my numbers, it looks like six of my nine American Fund accounts have outperformed the S&P500 so far this year. Two of them have returned more than double the S&P500. The three that haven't, I wouldn't have expected them to since they hold bonds as well.
Active management gets absolutely trashed here. I get indexing and I have indexed a lot of my money but I still own active funds. There are folks out there that do a good job as managers.

Larry Swedroe gave American Funds and T Rowe Price good marks. He trashed an article written on the American Century Investments website extolling the virtues of active management. He did a comparison with Vanguard, Vanguard beat American Century by 0.1%, so even AC nearly matched the indexes. As I recall, he gave Janus mixed reviews. It would be interesting if he would review Vanguard and Fidelity active funds.

If I had been putting all my monies into American Funds over the years and paid the advisor a load, I suspect that I would be pleased with the results. If I had put all my monies into Vanguard over my investment life, I also would be very pleased.
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Re: American Funds beat out Vanguard Index over lifetime?

Post by ram » Sun May 14, 2017 3:51 pm

Reading this thread I get the impression that American Funds are good enough to match returns of equivalent Vanguard funds. In other words they are at least able to cover their extra costs through their superior returns, at least in a retirement account (where tax drag would not matter)

Thus under ordinary circumstances one can not find any fault with somebody who elects to invest in a Vanguard index fund.

However I would like to speculate that after a significant downturn in the stock market a 'smart' active manager would have plenty of opportunities to buy good stocks at a discount. An indexer by definition would be forced to buy the whole basket. If this speculation is true then American should have had superior returns between March 2009 and now.

Somebody upthread has noted the slightly superior performance of two American funds since 1990's after taking the 5+% commission into consideration.

Has anybody compared American funds performance (net of costs) to Vanguard index funds since Mar 2009. (I am too lazy/dumb to do it myself.)

I am mostly an indexer but I am also not an active management hater. I have used Dodge Cox funds in the past. During my holding period I did not see any superiority over Vanguard and I got rid of them to decrease complexity. I have never used American funds.
Ram

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Re: American Funds beat out Vanguard Index over lifetime?

Post by nedsaid » Sun May 14, 2017 4:59 pm

The beauty of index funds is that they are cheap, you don't have to worry about manager turnover or style drift, and you get the market return. If you had to pick an active management company, American would be a good choice as would be T. Rowe Price.

Another problem with active management is that success draws new cash and at some point all the new cash drags down returns. A stock picker only has so many good ideas. We have seen asset bloat with successful funds in the past. The most famous example is the Fidelity Magellan fund, which once was an outstanding fund but has been mediocre in recent years.

With index funds, asset bloat is not a problem, at least for the broad indexes or the large-cap indexes like the S&P 500. In fact, asset bloat makes the expense ratios lower and lower as economies of scale start kicking in.
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Re: American Funds beat out Vanguard Index over lifetime?

Post by Wakefield1 » Sun May 14, 2017 5:49 pm

OK OK-I suppose someone needs to look to see if any Vanguard managed funds have beaten the "Index" over "lifetime" or some other time? :idea:

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Re: American Funds beat out Vanguard Index over lifetime?

Post by grabiner » Sun May 14, 2017 6:16 pm

zeugmite wrote:I've also noticed many funds report their growth of hypothetical $10000 performance without including expenses, which seems extremely deceptive. I mean, it's already in the past, they know how much expenses were charged. What's the point of reporting some growth performance (often beating the benchmark) that cannot be obtained by anyone investing in that fund?
Reported numbers do include the expense ratio of the fund; you can see this effect by comparing two different share classes of the same fund, such as American Funds A and C shares, or Vanguard's Investor and Admiral shares. The reported numbers also include 12b(1) fees, because those fees are part of the expense ratio.

The reported numbers do not include front-end or back-end loads, so you need to adjust for that if you pay the load. Not everyone pays it; most 401(k) plans waive loads, and there is no load to pay if you switch from one load fund to another in the same family. And even if you do pay a load, the amount you pay depends on your investment; the maximum 5.75% load for most load funds applies to investments up to $50K.
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Re: American Funds beat out Vanguard Index over lifetime?

Post by selftalk » Sun May 14, 2017 6:22 pm

Has anyone compared the yearly returns AFTER TAXES ? It can make a big difference.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by Outafter20 » Sun May 14, 2017 6:24 pm

grabiner wrote:
zeugmite wrote:I've also noticed many funds report their growth of hypothetical $10000 performance without including expenses, which seems extremely deceptive. I mean, it's already in the past, they know how much expenses were charged. What's the point of reporting some growth performance (often beating the benchmark) that cannot be obtained by anyone investing in that fund?
Reported numbers do include the expense ratio of the fund; you can see this effect by comparing two different share classes of the same fund, such as American Funds A and C shares, or Vanguard's Investor and Admiral shares. The reported numbers also include 12b(1) fees, because those fees are part of the expense ratio.

The reported numbers do not include front-end or back-end loads, so you need to adjust for that if you pay the load. Not everyone pays it; most 401(k) plans waive loads, and there is no load to pay if you switch from one load fund to another in the same family. And even if you do pay a load, the amount you pay depends on your investment; the maximum 5.75% load for most load funds applies to investments up to $50K.
FWIW, it has this disclaimer on the American Funds chart:

Unless otherwise indicated, American Funds returns are shown at maximum offering price (MOP) and reflect deduction of the 5.75% maximum sales charge at the beginning of the period shown. Thus, the net amount invested was $9,425 ($1,885/per fund in the American Funds Blend scenario.). The maximum initial sales charge
 was 8.50% prior to July 1, 1988.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by jadedfalcons » Sun May 14, 2017 6:33 pm

ram wrote: Has anybody compared American funds performance (net of costs) to Vanguard index funds since Mar 2009. (I am too lazy/dumb to do it myself.)


From Portfolio Visualizar, figuring from 2009-2017:

If you assume no load on the American Funds, a $10,000 investment in:

Vanguard Total Market Admiral: $32,291, CAGR 15.1%
American Funds New Economy: $34,757, CAGR 16.12%
American Funds New Perspective: $27,363, CAGR 12.84%

If you assume the worst case scenario of a 5.75% load on American Funds (and fairly speaking, most investors aren't paying that much), then your $10,000 would drop to $9,425 out of the gate, dropping returns to:

American Funds New Economy: $32,759, CAGR 16.12%
American Funds New Perspective: $25,790, CAGR 12.84%

Which still gives American Funds New Economy, probably not their best performer, a better return on investment than the total market fund IF it's in a tax deferred account.

Off hand, if you assume the full load, it looks like the time range of 2000-2017, the Vanguard Total Market Admiral would have beaten New Economy by roughly 5%, but New Perspective beat Total Market Admiral by a good 10%.

Personally, I dunno. My 2015/2016 ROTH IRA contributions were heavily in an index fund, with some sector at T. Rowe Price, but I do wonder if I wouldn't be better off just using the index funds for my taxable and American for my tax deferred.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by bnes » Mon May 15, 2017 12:12 am

Let's be clear that 5.75% is "worst case" for American Funds. First, in a company plan you may pay 0%. Second, retail customers pay a sliding scale:

Investment Amount and Account Value
Less than $25,000 - 5.75%
$25,000 to $49,999 - 5.00%
$50,000 to $99,999 - 4.5%
$100,000 to $249,999 - 3.5%
....
$1 million and above - 0%

You can also buy a bond fund at 3.75%, then exchange it for a stock fund without paying another sales load.

So the question really becomes: at what sales load/commission does competent active management make sense? Is it possible that "lite" active management might in fact pay it's own costs and then some?

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Re: American Funds beat out Vanguard Index over lifetime?

Post by MossySF » Mon May 15, 2017 12:34 am

Here's a better question ... SO WHAT if one company beat another company in the past by these minor numbers?

Let's say you held 100% of assets in retirement accounts and your AF stock funds were 0.5% better than indexes. OK, that might mean an extra $50K which at 4% SWR is $166/mo. But wait, you probably weren't/won't be in 100% stock the entire time and it's much rarer for active bond funds to outperform indexes with similar holdings by any amount. So instead of $50K, your 75/25 --> 25/75 glide path meant you got an extra $25K in total balance which then would be $83/mo in retirement income. This barely moves the needle.

Somehow, this doesn't seem like it's worth the effort to try to figure out whether any specific AF manager was truly skilled or the return patterns were just random noise. If you pick low-cost, auto-pilot solutions, you don't have to worry about your portfolio and you can concentrate on the factors that will truly make a difference -- investing behavior, income earning power, savings rate.

And if past performance is important, why even bother with American Funds? There's plenty of no-load, low-cost portfolio mixes with even crazier performance -- example, 33% Apple + 33% Berkshire + 33% treasuries -- I bet this would whip every possible AF mix.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by nedsaid » Mon May 15, 2017 11:18 am

selftalk wrote:Has anyone compared the yearly returns AFTER TAXES ? It can make a big difference.
The broad Vanguard Index Funds like the US Total Stock Market or Total International Stock Market would be more tax efficient because they have very low turnover. You would get the dividend distributions but very little in the way of capital gains. This would also apply to S&P 500 funds.

American Funds are lower turnover funds but still will have more turnover than Index funds. You would receive both dividend and capital gains distributions at least yearly, unless of course, the American Fund had no net realized capital gains. What I am trying to say is that American Funds will have higher turnover than the broad Index funds and thus will distribute more capital gains. I would expect American Funds, however, to have lower capital gains distributions than most active funds.
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Re: American Funds beat out Vanguard Index over lifetime?

Post by selftalk » Mon May 15, 2017 6:23 pm

Maybe I should sell my VTI and buy the American Funds. What do you think ? Ask yourself what John Bogle would do and why. Can the American Funds continue to do as well as it has in the past ? Answer that one ! I think you`d be nuts to think that they would after everything this website has taught us. Just stick with the index funds and quit trying to beat them and apply the knowledge you learned here and if you don`t you may gamble your returns away. What do the current Fidelity Magellan shareholders think about this after Peter Lynch retired at the top of his game. Buy the haystack and stop looking for the needle !

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Re: American Funds beat out Vanguard Index over lifetime?

Post by cheapskate » Mon May 15, 2017 7:03 pm

Since American Funds is touted often as one of the good guys, I was curious and called American about their world changing F-1/F-2/F-3 share classes.

From what they tell me, the F-* share classes can only be purchased in accounts which are managed by "American Funds" advisors. They are not available for purchase by individual investors. But, I also see that the F-1 share class is available for purchase with Schwab - replete with 12b-1 fees and another fees labeled as "Other Expenses". For the Washington Mutual Fund (basically a mega-cap blue chip dividend fund), the fees is 0.66%.

Why they think they can coax investors to pay 0.66% for a mega cap dividend fund when a similar ETF can be purchased for less than 10 bps is truly bizarre. More amusing is the fact that the A shares of this mutual fund (AwShx) has TRAILED the S&P500 over every time frame measurable - YTD, 1Yr, 3Yr, 5Yr, 10Yr, 15Yr.

Clearly American Funds has not gotten the memo that low cost investing is in.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by jadedfalcons » Tue May 16, 2017 8:35 am

In all fairness, you did pick one of their worst performing growth & income funds. I figure it doesn't hurt to have both, tho. Makes my portfolio a bit more interesting, and different funds outperform at different times, probably a bit like the logic behind doing total US market & total international. Also, I get a small boost from American Funds in that the credit union I moved them to gives me 10 basis points a year, based on my balance. So, for every $10k I have in funds, I get $10 at the end of the year. It's not going to make or break me, but it does help narrow the gap on expense ratios.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by ray333 » Tue May 16, 2017 9:05 am

American funds ... where my 5500 Roth contribution magically turns into a 5000 contribution overnight ... no thanks. looking forward to watching 5500 actually go into my Vanguard Roth next year.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by cheapskate » Tue May 16, 2017 9:48 am

jadedfalcons wrote:In all fairness, you did pick one of their worst performing growth & income funds. I figure it doesn't hurt to have both, tho. Makes my portfolio a bit more interesting, and different funds outperform at different times, probably a bit like the logic behind doing total US market & total international. Also, I get a small boost from American Funds in that the credit union I moved them to gives me 10 basis points a year, based on my balance. So, for every $10k I have in funds, I get $10 at the end of the year. It's not going to make or break me, but it does help narrow the gap on expense ratios.
I am in agreement with you. Mixing low cost active with passive is not a bad idea. I actually like Vanguard's low cost active funds a lot. If AF had opened up their F-3 share class to individual investors, that would have been a very positive move, alas they decided not to. Paying 25 bps in 12b-1 fees every year (and an extra layer of "other expenses") makes no sense - any potential outperformance is going to be drowned out by those 2 extra fees.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by nedsaid » Tue May 16, 2017 9:58 am

selftalk wrote:Maybe I should sell my VTI and buy the American Funds. What do you think ? Ask yourself what John Bogle would do and why. Can the American Funds continue to do as well as it has in the past ? Answer that one ! I think you`d be nuts to think that they would after everything this website has taught us. Just stick with the index funds and quit trying to beat them and apply the knowledge you learned here and if you don`t you may gamble your returns away. What do the current Fidelity Magellan shareholders think about this after Peter Lynch retired at the top of his game. Buy the haystack and stop looking for the needle !
I am glad you are sticking to your index funds. Certainly, I am not advocating that people sell their index funds and buy American Funds, even if they can get American Funds no-load. It is just that when I look at their performance record, I can't help noticing that the managers have done a very good job. Certainly not advocating that people rush to financial advisors and pay a load to get into American Funds. I am also saying that people that happen to own American Funds 'A' shares don't have to rush and sell either as the load paid is a sunk cost.

American Funds tend to be very large, these are team managed, each member of the team managing a slice of the fund. So far, they seem to have avoided the worst of the problems with asset bloat. It remains to be seen if they can continue their good record. So far, so good. The very broad index funds have no issues with asset bloat, in fact the more assets they draw, the lower the fees. In the case of index funds, asset bloat might actually help performance through economies of scale and lower fees.
A fool and his money are good for business.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by oldcomputerguy » Tue May 16, 2017 10:15 am

ole luna patoona wrote:Greetings,
I have read lots of previous forums on Bogleheads. This however, is my first post. I recently read this website: https://www.americanfunds.com/individua ... m_fb_10224

It is from American Funds website and they say they have consistently beat the Vanguard index since 1976. I know the expense ratio's are slightly different, but both under 1%. How could one justify investing in one fund over the other?

Thank you for any help you could offer me.
viewtopic.php?p=3341957#p3341957
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by selftalk » Tue May 16, 2017 11:49 am

It`s truly amazing that people still base there etf and mutual fund purchasing decisions on past performance. It`s like driving your car by navigating it by looking at it from your rear view mirror. But can`t they realize that the major index continues upward over the years even with corrections and consolidations along the way. Granted that the corrections vary in time and intensity but the index has trended up over many years and continues to do so and with a satisfactory compounding rate of return which should be a blessing to all those who look toward increasing their net worth and out pace the loss of their purchasing power of their paper money. The lure of fast money is sooo dangerous to your net worth and your time.
It would be great if we all had a mentor to teach us these facts instead of losing precious time doing the wrong things in investing.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by jadedfalcons » Tue May 16, 2017 12:25 pm

selftalk wrote:It`s truly amazing that people still base there etf and mutual fund purchasing decisions on past performance. It`s like driving your car by navigating it by looking at it from your rear view mirror. But can`t they realize that the major index continues upward over the years even with corrections and consolidations along the way.
Devil's advocate, but isn't talking about the major index going up over the years also talking about past performance?

I think it goes back to the "many roads to Dublin" way of looking at things. I don't disagree with passive index investing, but I'm also forced to admit that the money that I invested in New Economy & New Perspective in the early 90's, even after the 5.75% load, has grown more to this point than it would have in a Vanguard S&P 500 index fund. Now you could say again that I'm looking at past performance, but past performance is why it's worth more today than the alternative. Maybe the S&P500 would have done better over the last ten years, but then maybe the active funds will do better over the next ten.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by DueDiligence » Tue May 16, 2017 4:48 pm

American has two large blend funds (AIVSX, AWSHX) that existed at the inception of the Vanguard SnP500 VFINX (August 31, 1976).
These two outperformed VFINX by 1.0% and 0.8% per year for the 40.7 and 20 years ending May 15, 2017 (no-load, A class shares).
However VFINX has outperformed by 0.2%, 0.6%, and 0.7% per year for the 15, 10, and 5 years ending May 15, 2017.
Seems like a very consitent decline of alpha over 40 years with negative alpha for last 15 years! As expected by Larry?
DD
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Re: American Funds beat out Vanguard Index over lifetime?

Post by jimb_fromATL » Tue May 16, 2017 5:07 pm

selftalk wrote:It`s truly amazing that people still base there etf and mutual fund purchasing decisions on past performance. It`s like driving your car by navigating it by looking at it from your rear view mirror.
More like looking back at a field you just plowed or a yard you just mowed, or at your car tracks or footprints in the snow to see if you've been staying on the path or straying too far off. If you think you're going in the right direction but are not aware that your path hasn't been straight or in the direction you want, how do you know whether it needs correction?

If you don't use past performance to make guesses about the future, what else? Crystal balls? Casting runes? Newsletters from people who make their money from talking and writing about it?

Have you ever considered that all of the technical indicators that are used to try to guess how any stock or fund might perform in the future are really based on how similar stocks and funds have performed in the past?

jimb

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Re: American Funds beat out Vanguard Index over lifetime?

Post by William4u » Tue May 16, 2017 8:06 pm

There are probably an endless number of American Funds that LOST to the S&P500, especially after loads, ERs, taxes, and advisory fees.

If I threw together 100 random funds, a couple would beat the S&P500 by random chance alone.
Last edited by William4u on Wed May 17, 2017 7:53 am, edited 1 time in total.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by harvestbook » Wed May 17, 2017 7:05 am

I find the 12b(1) fees morally insulting. When I transferred my Edward Jones account to Vanguard and finally got to see and study all the funds (including several American funds) I was put in that were kept veiled in haze, I was kind of upset with myself for my ignorance--lots of hidden and high fees, lots of overlap, no rhyme or reason to the overall AA or approach. I now understand the "adviser" was doing what was best for the adviser and not for me. I don't even really blame the adviser. I had to take it upon myself to learn what was going on, largely through Bogle and Merriman.

In short, I'd rather earn a little less money using cheap index funds than to be insulted and exploited.
I'm not smart enough to know, and I can't afford to guess.

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Re: American Funds beat out Vanguard Index over lifetime?

Post by MossySF » Wed May 17, 2017 7:22 am

jimb_fromATL wrote:If you don't use past performance to make guesses about the future, what else? Crystal balls? Casting runes? Newsletters from people who make their money from talking and writing about it?
Use past performance as a general guideline based on probability principles. Say you are betting on a coin flip. You know over the long run your odds should be 50:50. And you use past preformance to confirm the idea -- do a 1000 flips and see it if matches your predictions.

So if we take this idea with investing, past performance is to confirm in general that over the long-run, safer investments will return less than riskier investments but have have lower volatility. Beyond that, the exact performance/volatility is not something you are in control of.

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