17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Topic Author
fortfun
Posts: 2470
Joined: Tue Apr 19, 2016 7:31 pm

17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by fortfun » Fri May 10, 2019 3:52 pm

403b Salesman gave me this today. Comments?
https://www.americanfunds.com/advisor/p ... _tcaii.pdf

lukestuckenhymer
Posts: 212
Joined: Wed May 30, 2018 11:53 am

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by lukestuckenhymer » Fri May 10, 2019 3:55 pm

Very important small print:
If a sales charge had been deducted, results would have been lower.
Do a search for other threads about American Funds. Very high loads, high ERs. Not recommended in general.

SovereignInvestor
Posts: 434
Joined: Mon Aug 20, 2018 4:41 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by SovereignInvestor » Fri May 10, 2019 4:02 pm

And the many others that didn't were probably shut down years ago so.there's survivorship bias.

whomever
Posts: 886
Joined: Sat Apr 21, 2012 5:21 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by whomever » Fri May 10, 2019 4:41 pm

I picked one of those at random. Assuming that 'AMCAP' means ticker AMCPX:

The good news: it has indeed outperformed the S&P500 total return since it's inception in 1967.
The bad news: looking at the morningstar graph, that out performance mostly happened over a couple of years in the late 1970's or so. It has slightly underperformed the S&P500 TR over the most recent 10, 5, 3, and 1 year periods.

That raises the question of whether that out performance will recur. If it was the result of a super dooper manager, she has probably retired. For it to reasonably recur, it would have to be the result of some kind of persistent institutional advantage that took advantage of some unique opportunity, and that same strategy is still waiting patiently for the right set of circumstances to happen along again.

Or, maybe they got lucky.

As mentioned above, it's not unknown for investment companies to start a bunch of funds, then quietly close ones that weren't lucky, while touting the ones that did get lucky as super performers. I have no idea if that's the case here. It would be interesting to see if other funds started by that company at the same time are still extant.

User avatar
Topic Author
fortfun
Posts: 2470
Joined: Tue Apr 19, 2016 7:31 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by fortfun » Fri May 10, 2019 5:13 pm

This disclaimer is also interesting: Content contained herein is not intended to serve as impartial investment or fiduciary advice.

User avatar
Nate79
Posts: 5177
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Nate79 » Fri May 10, 2019 5:15 pm

SovereignInvestor wrote:
Fri May 10, 2019 4:02 pm
And the many others that didn't were probably shut down years ago so.there's survivorship bias.
Which American funds are you referring that have been shutdown? Since you mention many you should be easily able to list a few.

User avatar
Topic Author
fortfun
Posts: 2470
Joined: Tue Apr 19, 2016 7:31 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by fortfun » Fri May 10, 2019 5:25 pm

Nate79 wrote:
Fri May 10, 2019 5:15 pm
SovereignInvestor wrote:
Fri May 10, 2019 4:02 pm
And the many others that didn't were probably shut down years ago so.there's survivorship bias.
Which American funds are you referring that have been shutdown? Since you mention many you should be easily able to list a few.
This 2012 article didn't paint a rosy picture for American Funds. Perhaps some of them got the axe? Or, AF made a miraculous recovery.
https://www.reuters.com/article/us-amer ... 1320120119

tdmp
Posts: 20
Joined: Sat Mar 09, 2019 10:12 am

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by tdmp » Fri May 10, 2019 5:34 pm

I have seen charts like this many times. American Funds is actually run by a good company and tend to be more conservative. Investors can actually do worse than buying American Funds; ie. buying the hot stock (Valeant when it was trading at $236/share--caused a lot of issues with Sequoia fund (SEQUX), hot mutual funds (ie. Fairholme when it was rocking it)
If you decide to use American funds, you should still apply some of the bogleheads principles:
The MOST IMPORTANT principle of all is: Asset Allocation base on appropriate risk tolerance ie. equity/fixed income: 80/20, 70/30, etc..; And also stick with this with an investment policy statement (IPS). Many times investors OVERESTIMATE their risk tolerance and have more percentage in equity; and when there is a downturn, instead of buying more equity, they panic and sell.
Also, don't buy and keep changing from one American Funds to another, unless you have to re-balance your assets.
Will American funds beat a standard US Total Market Index + Total international index/Total bond index??? maybe, maybe not...
Saying all this: I think on the domestic equity side: it will be hard to beat the Total Market index unless you take more risk ie. tilt towards small caps. I don't know how bonds are traded so I am not going to comment on that.
The way active funds beat its respective index is to find some stocks that are undervalued and buy ; and then find some stocks that are over-valued and sell. In order to do that, one must have some sort of "better" information in order to make those types of decisions. With the age of fast information via the internet, I am unsure if a manager can consistently find these values. Because once they do find those stocks to buy and sell, certainly that fund will increase its value relative to its respective index; and then become very popular and more money will pour in. Now with this new money (Asset bloat), the manager will have to find new values, they can't simply just buy the stock that was undervalue 5 years ago, b/c now that stock is priced in. And if they buy that stock, they will mirror an index (and thus some are "closet" index funds)...History has many such funds that were one time great, but either doesn't exist or has somewhat faded: a couple of examples:
1) Magellan fund: trounced S&P 500 for 13 straight years: once had AUM of > $100 billion, now only has about $15 billion
2) Legg Mason Value Trust Fund: Bill Miller ran this and beat the S&P 500 for 15 straight years, peaked AUM was $20 billion; it subsequently flopped and was taken over by Clearbridge and is now the Clearbridge Value Trust ; current AUM is $1.9 billion.
3) Seqouia fund: as above: outperformed S&P 500 from 2000-2015. peaked AUM $9.3 billion...then decided to pile on Valeant. Now AUM is $4 billion
So many investors have pulled money out of these funds....There are many more cases of these. Likewise there are many funds that are currently trouncing the S&P 500; but how do you know which one today is going to do it for the next 10 or 15 years?

So me personally, I just think it is that difficult to beat the index. It can be done, but I am unsure if it can be done consistently, especially when the expense ratios is higher than Total market index. What I do know is that Total market index will finish above average in the long run. And that is good enough for me.
My take is: Index fund with appropriate asset allocation and IPS > American funds with appropriate asset allocation and IPS > Index funds that goes in and out of market depending on how the market is doing (ie. Market timing).

User avatar
Topic Author
fortfun
Posts: 2470
Joined: Tue Apr 19, 2016 7:31 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by fortfun » Fri May 10, 2019 5:38 pm

tdmp wrote:
Fri May 10, 2019 5:34 pm
I have seen charts like this many times. American Funds is actually run by a good company and tend to be more conservative. Investors can actually do worse than buying American Funds; ie. buying the hot stock (Valeant when it was trading at $236/share--caused a lot of issues with Sequoia fund (SEQUX), hot mutual funds (ie. Fairholme when it was rocking it)
If you decide to use American funds, you should still apply some of the bogleheads principles:
The MOST IMPORTANT principle of all is: Asset Allocation base on appropriate risk tolerance ie. equity/fixed income: 80/20, 70/30, etc..; And also stick with this with an investment policy statement (IPS). Many times investors OVERESTIMATE their risk tolerance and have more percentage in equity; and when there is a downturn, instead of buying more equity, they panic and sell.
Also, don't buy and keep changing from one American Funds to another, unless you have to re-balance your assets.
Will American funds beat a standard US Total Market Index + Total international index/Total bond index??? maybe, maybe not...
Saying all this: I think on the domestic equity side: it will be hard to beat the Total Market index unless you take more risk ie. tilt towards small caps. I don't know how bonds are traded so I am not going to comment on that.
The way active funds beat its respective index is to find some stocks that are undervalued and buy ; and then find some stocks that are over-valued and sell. In order to do that, one must have some sort of "better" information in order to make those types of decisions. With the age of fast information via the internet, I am unsure if a manager can consistently find these values. Because once they do find those stocks to buy and sell, certainly that fund will increase its value relative to its respective index; and then become very popular and more money will pour in. Now with this new money (Asset bloat), the manager will have to find new values, they can't simply just buy the stock that was undervalue 5 years ago, b/c now that stock is priced in. And if they buy that stock, they will mirror an index (and thus some are "closet" index funds)...History has many such funds that were one time great, but either doesn't exist or has somewhat faded: a couple of examples:
1) Magellan fund: trounced S&P 500 for 13 straight years: once had AUM of > $100 billion, now only has about $15 billion
2) Legg Mason Value Trust Fund: Bill Miller ran this and beat the S&P 500 for 15 straight years, peaked AUM was $20 billion; it subsequently flopped and was taken over by Clearbridge and is now the Clearbridge Value Trust ; current AUM is $1.9 billion.
3) Seqouia fund: as above: outperformed S&P 500 from 2000-2015. peaked AUM $9.3 billion...then decided to pile on Valeant. Now AUM is $4 billion
So many investors have pulled money out of these funds....There are many more cases of these. Likewise there are many funds that are currently trouncing the S&P 500; but how do you know which one today is going to do it for the next 10 or 15 years?

So me personally, I just think it is that difficult to beat the index. It can be done, but I am unsure if it can be done consistently, especially when the expense ratios is higher than Total market index. What I do know is that Total market index will finish above average in the long run. And that is good enough for me.
My take is: Index fund with appropriate asset allocation and IPS > American funds with appropriate asset allocation and IPS > Index funds that goes in and out of market depending on how the market is doing (ie. Market timing).
This is what I told him yesterday, when I said, "No thanks." This is what he sent me today. Haven't responded yet...

User avatar
Reb Tevye
Posts: 156
Joined: Sun Aug 17, 2014 11:54 am
Location: On the roof

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Reb Tevye » Fri May 10, 2019 6:22 pm

After tax yield is another consideration if it will be held in a taxable account.

They compare ICA (AIVSX) to the SP500.
One Vanguard SP500 fund is VIIIX

From Morningstar,
Pretax
AIVSX 10yr: 13.3%, 15yr: 8.2%
VIIIX 10yr: 15.3, 15yr: 9.0%
US Total Mkt: 10yr: 15.4%, 15yr: 9.3%

Tax-Adjusted
AIVSX 10yr: 10.9%, 15yr: 6.2%
VIIIX 10yr: 14.7%, 15yr: 8.5%

My recollection of reading other American Funds threads is that they have indeed had good performance on some funds over some time periods. But not always. And who knows about their future. And I always wonder about active fund houses... if they are so good, why do they need so many different funds. Just make and promote the one that did, does, and will always beat all others over a customer’s target time frame. Why make a fund that ends up underperforming their top fund?
"So, what would have been so terrible if I had a small fortune?"

tdmp
Posts: 20
Joined: Sat Mar 09, 2019 10:12 am

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by tdmp » Fri May 10, 2019 6:34 pm

Clarification: I don’t know if SEQUX bought valeant at $236/share or not . What I meant was that many investors bought it at that price . And SEQUX had a large position in Valeant.

tdmp
Posts: 20
Joined: Sat Mar 09, 2019 10:12 am

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by tdmp » Fri May 10, 2019 6:46 pm

fortfun wrote:
Fri May 10, 2019 5:38 pm
tdmp wrote:
Fri May 10, 2019 5:34 pm
I have seen charts like this many times. American Funds is actually run by a good company and tend to be more conservative. Investors can actually do worse than buying American Funds; ie. buying the hot stock (Valeant when it was trading at $236/share--caused a lot of issues with Sequoia fund (SEQUX), hot mutual funds (ie. Fairholme when it was rocking it)
If you decide to use American funds, you should still apply some of the bogleheads principles:
The MOST IMPORTANT principle of all is: Asset Allocation base on appropriate risk tolerance ie. equity/fixed income: 80/20, 70/30, etc..; And also stick with this with an investment policy statement (IPS). Many times investors OVERESTIMATE their risk tolerance and have more percentage in equity; and when there is a downturn, instead of buying more equity, they panic and sell.
Also, don't buy and keep changing from one American Funds to another, unless you have to re-balance your assets.
Will American funds beat a standard US Total Market Index + Total international index/Total bond index??? maybe, maybe not...
Saying all this: I think on the domestic equity side: it will be hard to beat the Total Market index unless you take more risk ie. tilt towards small caps. I don't know how bonds are traded so I am not going to comment on that.
The way active funds beat its respective index is to find some stocks that are undervalued and buy ; and then find some stocks that are over-valued and sell. In order to do that, one must have some sort of "better" information in order to make those types of decisions. With the age of fast information via the internet, I am unsure if a manager can consistently find these values. Because once they do find those stocks to buy and sell, certainly that fund will increase its value relative to its respective index; and then become very popular and more money will pour in. Now with this new money (Asset bloat), the manager will have to find new values, they can't simply just buy the stock that was undervalue 5 years ago, b/c now that stock is priced in. And if they buy that stock, they will mirror an index (and thus some are "closet" index funds)...History has many such funds that were one time great, but either doesn't exist or has somewhat faded: a couple of examples:
1) Magellan fund: trounced S&P 500 for 13 straight years: once had AUM of > $100 billion, now only has about $15 billion
2) Legg Mason Value Trust Fund: Bill Miller ran this and beat the S&P 500 for 15 straight years, peaked AUM was $20 billion; it subsequently flopped and was taken over by Clearbridge and is now the Clearbridge Value Trust ; current AUM is $1.9 billion.
3) Seqouia fund: as above: outperformed S&P 500 from 2000-2015. peaked AUM $9.3 billion...then decided to pile on Valeant. Now AUM is $4 billion
So many investors have pulled money out of these funds....There are many more cases of these. Likewise there are many funds that are currently trouncing the S&P 500; but how do you know which one today is going to do it for the next 10 or 15 years?

So me personally, I just think it is that difficult to beat the index. It can be done, but I am unsure if it can be done consistently, especially when the expense ratios is higher than Total market index. What I do know is that Total market index will finish above average in the long run. And that is good enough for me.
My take is: Index fund with appropriate asset allocation and IPS > American funds with appropriate asset allocation and IPS > Index funds that goes in and out of market depending on how the market is doing (ie. Market timing).
This is what I told him yesterday, when I said, "No thanks." This is what he sent me today. Haven't responded yet...
Sounds like you have a firm understanding of your situation. Let us know what you decide later.

Tdubs
Posts: 860
Joined: Tue Apr 24, 2018 7:50 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Tdubs » Fri May 10, 2019 6:47 pm

Hasn't JP Morgan made almost exactly the same claim? Something like 15 out of 16, or 17 out of 18. And T. Rowe Price?

User avatar
whodidntante
Posts: 6721
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by whodidntante » Fri May 10, 2019 7:00 pm

Is there some reason you are arguing with someone else's advisor? I mean, this person is only your advisor if you take or seriously consider their advice.

staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 9:40 am

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by staythecourse » Fri May 10, 2019 7:15 pm

SovereignInvestor wrote:
Fri May 10, 2019 4:02 pm
And the many others that didn't were probably shut down years ago so.there's survivorship bias.
Bingo.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

Jack FFR1846
Posts: 10505
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Jack FFR1846 » Fri May 10, 2019 7:24 pm

Nate79 wrote:
Fri May 10, 2019 5:15 pm
SovereignInvestor wrote:
Fri May 10, 2019 4:02 pm
And the many others that didn't were probably shut down years ago so.there's survivorship bias.
Which American funds are you referring that have been shutdown? Since you mention many you should be easily able to list a few.
https://personal.vanguard.com/pdf/s362.pdf

It doesn't name the funds, but it stresses the point about survivor bias.

https://investorplace.com/2015/02/ameri ... erforming/

A good article from 2015 about laggards in American Funds.
Last edited by Jack FFR1846 on Fri May 10, 2019 7:29 pm, edited 1 time in total.
Bogle: Smart Beta is stupid

Jags4186
Posts: 3919
Joined: Wed Jun 18, 2014 7:12 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Jags4186 » Fri May 10, 2019 7:26 pm

There have been many American funds that have outperformed their respective index over a lifetime. American funds are well run. However if you look at more recent performance they have all done just average.

It’s likely true long in the past (and many of their funds are very old) that skilled investors were able to outperform due to asymmetries in information. That simply isn’t the case anymore.

User avatar
Nate79
Posts: 5177
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Nate79 » Fri May 10, 2019 7:29 pm

Jack FFR1846 wrote:
Fri May 10, 2019 7:24 pm
Nate79 wrote:
Fri May 10, 2019 5:15 pm
SovereignInvestor wrote:
Fri May 10, 2019 4:02 pm
And the many others that didn't were probably shut down years ago so.there's survivorship bias.
Which American funds are you referring that have been shutdown? Since you mention many you should be easily able to list a few.
https://personal.vanguard.com/pdf/s362.pdf

It doesn't name the funds, but it stresses the point about survivor bias.
The question and topic of the thread is American funds.

User avatar
Nate79
Posts: 5177
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Nate79 » Fri May 10, 2019 7:31 pm

Reb Tevye wrote:
Fri May 10, 2019 6:22 pm
After tax yield is another consideration if it will be held in a taxable account.

They compare ICA (AIVSX) to the SP500.
One Vanguard SP500 fund is VIIIX

From Morningstar,
Pretax
AIVSX 10yr: 13.3%, 15yr: 8.2%
VIIIX 10yr: 15.3, 15yr: 9.0%
US Total Mkt: 10yr: 15.4%, 15yr: 9.3%

Tax-Adjusted
AIVSX 10yr: 10.9%, 15yr: 6.2%
VIIIX 10yr: 14.7%, 15yr: 8.5%

My recollection of reading other American Funds threads is that they have indeed had good performance on some funds over some time periods. But not always. And who knows about their future. And I always wonder about active fund houses... if they are so good, why do they need so many different funds. Just make and promote the one that did, does, and will always beat all others over a customer’s target time frame. Why make a fund that ends up underperforming their top fund?
Why does Vanguard have so many active funds, or even so many index funds for that matter? Because each of them have a different strategy (stock/bond allocation, large, small, value, growth, international, etc). Investors want variety and the fund companies give it to them.

User avatar
Taylor Larimore
Advisory Board
Posts: 28830
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

"100 of 113 Vanguard stock funds outperformed--"

Post by Taylor Larimore » Fri May 10, 2019 7:33 pm

Bogleheads:

Each year Vanguard publishes a report similar to American.
For the 10-year period ended December 31, 2018, 9 of 9 Vanguard money market funds, 38 of 55 Vanguard bond funds, 20 of 23 Vanguard balanced funds, and 100 of 113 Vanguard stock funds—for a total of 167 of 200 Vanguard funds—outperformed their Lipper peer-group average. Results will vary for other time periods. Only mutual funds with a minimum 10-year history were included in the comparison. The competitive performance data shown represent past performance, which is not a guarantee of future results.
https://investor.vanguard.com/mutual-fu ... load-funds

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

User avatar
oldcomputerguy
Moderator
Posts: 6460
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods in East Tennessee

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by oldcomputerguy » Fri May 10, 2019 7:37 pm

fortfun wrote:
Fri May 10, 2019 3:52 pm
403b Salesman gave me this today. Comments?
https://www.americanfunds.com/advisor/p ... _tcaii.pdf
It's misleading at best. I did a spot-check on the American Funds web site looking at prospectus information for some of these funds. The ones I looked at (The Investment Company of America, American Mutual Fund, Washington Mutual Investors' Fund, New Prospective Fund) all had a 5.75% front end load. (The prospectus document also showed all of them having a contingent 1.0 sales load, but that was only under certain circumstances.)

As another poster pointed out, the linked sheet explicitly says that the chart data shown does not include loads. Looking at the chart, the most grand-looking outperformance seems to be by New Prospective Fund (which according to the graphic beat its index, MSCI ACWI, by 3.5% on average). If you deduct the 5.75% front-end load, then the performance of the fund shares held by an investor actually trails the index by -2.25%.

In addition, it's worth noting that all four had 12b-1 fees ranging from 0.24% to 1.0%, part of which ultimately ends up in your friendly neighborhood 403b salesman's pocket, which means the salesman has an incentive to put you into these horrible funds. Don't let him.
"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." (Aaron Sorkin)

JBTX
Posts: 5558
Joined: Wed Jul 26, 2017 12:46 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by JBTX » Fri May 10, 2019 7:45 pm

When I looked at the most popular American funds some months ago on a 10 and 15 year basis, their performance pretty closely tracked the most applicable index. I think that outperformance was prior to that and at this point is largely irrelevant.

Look at it this way. You are a fund company and start 10 funds. 5 beat the indexes and 5 don't. You eventually close the 5 that didn't down and then basically track the indexes going forward with the other 5. If fees are reasonable they may continue to show lifetime outperformance for many years, even though it is largely irrelevant because fund assets were small starting out.

User avatar
Topic Author
fortfun
Posts: 2470
Joined: Tue Apr 19, 2016 7:31 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by fortfun » Fri May 10, 2019 7:57 pm

oldcomputerguy wrote:
Fri May 10, 2019 7:37 pm
fortfun wrote:
Fri May 10, 2019 3:52 pm
403b Salesman gave me this today. Comments?
https://www.americanfunds.com/advisor/p ... _tcaii.pdf
It's misleading at best. I did a spot-check on the American Funds web site looking at prospectus information for some of these funds. The ones I looked at (The Investment Company of America, American Mutual Fund, Washington Mutual Investors' Fund, New Prospective Fund) all had a 5.75% front end load. (The prospectus document also showed all of them having a contingent 1.0 sales load, but that was only under certain circumstances.)

As another poster pointed out, the linked sheet explicitly says that the chart data shown does not include loads. Looking at the chart, the most grand-looking outperformance seems to be by New Prospective Fund (which according to the graphic beat its index, MSCI ACWI, by 3.5% on average). If you deduct the 5.75% front-end load, then the performance of the fund shares held by an investor actually trails the index by -2.25%.

In addition, it's worth noting that all four had 12b-1 fees ranging from 0.24% to 1.0%, part of which ultimately ends up in your friendly neighborhood 403b salesman's pocket, which means the salesman has an incentive to put you into these horrible funds. Don't let him.
I won't but sadly many of my work colleagues have been suckered in. I use our 401k instead, which has some terrific low fee options. Thanks for your input.

User avatar
Topic Author
fortfun
Posts: 2470
Joined: Tue Apr 19, 2016 7:31 pm

Re: "100 of 113 Vanguard stock funds outperformed--"

Post by fortfun » Fri May 10, 2019 7:58 pm

Taylor Larimore wrote:
Fri May 10, 2019 7:33 pm
Bogleheads:

Each year Vanguard publishes a report similar to American.
For the 10-year period ended December 31, 2018, 9 of 9 Vanguard money market funds, 38 of 55 Vanguard bond funds, 20 of 23 Vanguard balanced funds, and 100 of 113 Vanguard stock funds—for a total of 167 of 200 Vanguard funds—outperformed their Lipper peer-group average. Results will vary for other time periods. Only mutual funds with a minimum 10-year history were included in the comparison. The competitive performance data shown represent past performance, which is not a guarantee of future results.
https://investor.vanguard.com/mutual-fu ... load-funds

Best wishes.
Taylor
Thanks Taylor. I guess this 100 or 113 includes VTSAX and other total indexes, yes?

User avatar
Nate79
Posts: 5177
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Nate79 » Fri May 10, 2019 8:05 pm

oldcomputerguy wrote:
Fri May 10, 2019 7:37 pm
fortfun wrote:
Fri May 10, 2019 3:52 pm
403b Salesman gave me this today. Comments?
https://www.americanfunds.com/advisor/p ... _tcaii.pdf
It's misleading at best. I did a spot-check on the American Funds web site looking at prospectus information for some of these funds. The ones I looked at (The Investment Company of America, American Mutual Fund, Washington Mutual Investors' Fund, New Prospective Fund) all had a 5.75% front end load. (The prospectus document also showed all of them having a contingent 1.0 sales load, but that was only under certain circumstances.)

As another poster pointed out, the linked sheet explicitly says that the chart data shown does not include loads. Looking at the chart, the most grand-looking outperformance seems to be by New Prospective Fund (which according to the graphic beat its index, MSCI ACWI, by 3.5% on average). If you deduct the 5.75% front-end load, then the performance of the fund shares held by an investor actually trails the index by -2.25%.

In addition, it's worth noting that all four had 12b-1 fees ranging from 0.24% to 1.0%, part of which ultimately ends up in your friendly neighborhood 403b salesman's pocket, which means the salesman has an incentive to put you into these horrible funds. Don't let him.
American funds have all sorts of share classes. Some of them have front end loads (that pay for your advisor), some have no loads (thru advisor then you pay an AUM probably) and some neither have loads nor other fees and can have pretty low ER (for example in my 401k we have Europac for 0.49% ER).

User avatar
oldcomputerguy
Moderator
Posts: 6460
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods in East Tennessee

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by oldcomputerguy » Fri May 10, 2019 8:23 pm

Nate79 wrote:
Fri May 10, 2019 8:05 pm

American funds have all sorts of share classes.
This is true, but Class A shares was the share class being described in the graph.
"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." (Aaron Sorkin)

TropikThunder
Posts: 1866
Joined: Sun Apr 03, 2016 5:41 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by TropikThunder » Fri May 10, 2019 8:24 pm

Nate79 wrote:
Fri May 10, 2019 8:05 pm
oldcomputerguy wrote:
Fri May 10, 2019 7:37 pm
fortfun wrote:
Fri May 10, 2019 3:52 pm
403b Salesman gave me this today. Comments?
https://www.americanfunds.com/advisor/p ... _tcaii.pdf
It's misleading at best. I did a spot-check on the American Funds web site looking at prospectus information for some of these funds. The ones I looked at (The Investment Company of America, American Mutual Fund, Washington Mutual Investors' Fund, New Prospective Fund) all had a 5.75% front end load. (The prospectus document also showed all of them having a contingent 1.0 sales load, but that was only under certain circumstances.)

As another poster pointed out, the linked sheet explicitly says that the chart data shown does not include loads. Looking at the chart, the most grand-looking outperformance seems to be by New Prospective Fund (which according to the graphic beat its index, MSCI ACWI, by 3.5% on average). If you deduct the 5.75% front-end load, then the performance of the fund shares held by an investor actually trails the index by -2.25%.

In addition, it's worth noting that all four had 12b-1 fees ranging from 0.24% to 1.0%, part of which ultimately ends up in your friendly neighborhood 403b salesman's pocket, which means the salesman has an incentive to put you into these horrible funds. Don't let him.
American funds have all sorts of share classes. Some of them have front end loads (that pay for your advisor), some have no loads (thru advisor then you pay an AUM probably) and some neither have loads nor other fees and can have pretty low ER (for example in my 401k we have Europac for 0.49% ER).
I agree the "they have front-end loads!" criticism is a bit overdone, since like you say many people can access American Funds in a 401k with no load. They are a decent company, and one could do much worse in a 401k, but I think their heavy handed marketing rubs a lot of people the wrong way.

TropikThunder
Posts: 1866
Joined: Sun Apr 03, 2016 5:41 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by TropikThunder » Fri May 10, 2019 8:27 pm

oldcomputerguy wrote:
Fri May 10, 2019 8:23 pm
Nate79 wrote:
Fri May 10, 2019 8:05 pm

American funds have all sorts of share classes.
This is true, but Class A shares was the share class being described in the graph.
Well, if one is buying them in a 401k without the load, then one does not need to adjust the graph.

User avatar
Nate79
Posts: 5177
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Nate79 » Fri May 10, 2019 8:29 pm

oldcomputerguy wrote:
Fri May 10, 2019 7:37 pm
fortfun wrote:
Fri May 10, 2019 3:52 pm
403b Salesman gave me this today. Comments?
https://www.americanfunds.com/advisor/p ... _tcaii.pdf
It's misleading at best. I did a spot-check on the American Funds web site looking at prospectus information for some of these funds. The ones I looked at (The Investment Company of America, American Mutual Fund, Washington Mutual Investors' Fund, New Prospective Fund) all had a 5.75% front end load. (The prospectus document also showed all of them having a contingent 1.0 sales load, but that was only under certain circumstances.)

As another poster pointed out, the linked sheet explicitly says that the chart data shown does not include loads. Looking at the chart, the most grand-looking outperformance seems to be by New Prospective Fund (which according to the graphic beat its index, MSCI ACWI, by 3.5% on average). If you deduct the 5.75% front-end load, then the performance of the fund shares held by an investor actually trails the index by -2.25%.

In addition, it's worth noting that all four had 12b-1 fees ranging from 0.24% to 1.0%, part of which ultimately ends up in your friendly neighborhood 403b salesman's pocket, which means the salesman has an incentive to put you into these horrible funds. Don't let him.
No, the front end load is only paid once, upfront. The chart on the first page American funds is claiming an annual average outperformance. It doesnt take but a couple of years of outperformance to make up for the load IF the outperformance turns out to be true in the future.

User avatar
Taylor Larimore
Advisory Board
Posts: 28830
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Taylor Larimore » Fri May 10, 2019 8:31 pm

Thanks Taylor. I guess this 100 or 113 includes VTSAX and other total indexes, yes?
forfun:

According to Morningstar, Vanguard Total Stock Market Index Fund Admiral (VTSAX) 15-year return (the longest period shown) ranked in the TOP 12% of all Large Blend Funds. VTSAX ranked in the TOP 4% for after-tax return.

http://performance.morningstar.com/fund ... ture=en_US
Don't look for the needle. Buy the haystack. -- Jack Bogle
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Mr.BB
Posts: 1064
Joined: Sun May 08, 2016 10:10 am

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Mr.BB » Fri May 10, 2019 8:37 pm

Nate79 wrote:
Fri May 10, 2019 8:29 pm
oldcomputerguy wrote:
Fri May 10, 2019 7:37 pm
fortfun wrote:
Fri May 10, 2019 3:52 pm
403b Salesman gave me this today. Comments?
https://www.americanfunds.com/advisor/p ... _tcaii.pdf
It's misleading at best. I did a spot-check on the American Funds web site looking at prospectus information for some of these funds. The ones I looked at (The Investment Company of America, American Mutual Fund, Washington Mutual Investors' Fund, New Prospective Fund) all had a 5.75% front end load. (The prospectus document also showed all of them having a contingent 1.0 sales load, but that was only under certain circumstances.)

As another poster pointed out, the linked sheet explicitly says that the chart data shown does not include loads. Looking at the chart, the most grand-looking outperformance seems to be by New Prospective Fund (which according to the graphic beat its index, MSCI ACWI, by 3.5% on average). If you deduct the 5.75% front-end load, then the performance of the fund shares held by an investor actually trails the index by -2.25%.

In addition, it's worth noting that all four had 12b-1 fees ranging from 0.24% to 1.0%, part of which ultimately ends up in your friendly neighborhood 403b salesman's pocket, which means the salesman has an incentive to put you into these horrible funds. Don't let him.
No, the front end load is only paid once, upfront. The chart on the first page American funds is claiming an annual average outperformance. It doesnt take but a couple of years of outperformance to make up for the load IF the outperformance turns out to be true in the future.
If the Front End Load is only paid once, then couldn't you just start with a minimal balance. I looked on Monringstar at AGTHX American Fund "The Growth Fund" it said the minimal initial purchase $250.00
So, if I did the minimal to start that would is the only time the 5.75% would be charged? Basically $14.00 dollars.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

Admiral
Posts: 2488
Joined: Mon Oct 27, 2014 12:35 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Admiral » Fri May 10, 2019 8:41 pm

This thread brings to mind the old saw:

There may be funds that can/will beat indexing. But how will you be able to identify them in advance?

Answer: you can't.

User avatar
grabiner
Advisory Board
Posts: 25430
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by grabiner » Fri May 10, 2019 9:54 pm

Mr.BB wrote:
Fri May 10, 2019 8:37 pm
Nate79 wrote:
Fri May 10, 2019 8:29 pm
No, the front end load is only paid once, upfront. The chart on the first page American funds is claiming an annual average outperformance. It doesnt take but a couple of years of outperformance to make up for the load IF the outperformance turns out to be true in the future.
If the Front End Load is only paid once, then couldn't you just start with a minimal balance. I looked on Monringstar at AGTHX American Fund "The Growth Fund" it said the minimal initial purchase $250.00
So, if I did the minimal to start that would is the only time the 5.75% would be charged? Basically $14.00 dollars.
Front-end loads are paid on every new dollar invested (but not on reinvested dividends, nor on money moved from other funds in the same family). The only load reduction for later investments is the result of breakpoints; if the fund drops the load from 5.75% to 4.75% on investments over $50K, then a new investment of $10K would cost $575, but adding $10K to an investment which is already worth $40K would cost $475.
Wiki David Grabiner

User avatar
Portfolio7
Posts: 668
Joined: Tue Aug 02, 2016 3:53 am

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by Portfolio7 » Sat May 11, 2019 12:10 am

American funds have a long history of strong performance, but the outperformance seems to be an artifact of prior decades now. In any case the front end loads on some fund classes are a heavy price to pay, by my math it would take decades of outperformance to make up for that. The no-load 401k funds still can have very high fees, well over 1%, depending on the class of fund.

I also remember reading that there was significant style drift in many American funds, the lattitude for which is spelled out in the prospectus, such that comparing to index funds can be a bit apples and oranges.

DW's terrible 401k plan at a former employer was so ugly, we just dropped all contributions into a money market fund for several years. Then they implemented a new MM fund with ridiculous fee, so we moved everything into American Funds (our only choice.) We had very reasonable returns, but I wasn't trying to benchmark them. Once DW moved to a new employer, I moved the entire 401K into a Fidelity IRA.
"An investment in knowledge pays the best interest" - Benjamin Franklin

User avatar
unclescrooge
Posts: 3994
Joined: Thu Jun 07, 2012 7:00 pm

Re: 17 of our 18 equity-focused American Funds have delivered index-beating lifetime results.

Post by unclescrooge » Sat May 11, 2019 12:22 am

Tdubs wrote:
Fri May 10, 2019 6:47 pm
Hasn't JP Morgan made almost exactly the same claim? Something like 15 out of 16, or 17 out of 18. And T. Rowe Price?
Unlikely. Their funds are quite below average.


https://www.bloomberg.com/news/articles ... st-gave-up

Post Reply