Advisers abandoning American Funds

Seven of the 10 funds with the biggest outflows so far this year are part of the American Funds family, a sign that investors haven't forgotten the group's poor performance during the bear market of 2008-2009. American Funds, which is advised by Capital Research & Management Co., had for years been a darling of the adviser community, but after the market tanked in 2008, the funds' equity bent hurt performance. Investors' loss of faith in the funds must be analyzed in the context of the past decade, especially because so far this year their performance is in line with other equity funds, said Russell Kinnel, director of mutual fund research at Morningstar Inc. “The outflows are surprising because the performance isn't that bad,” he said. “It's surprising because historically people have stayed with American Funds to their benefit.” For example, The American Funds Washington Mutual Fund Ticker:(AWSHX), which saw more than $2.79 billion in outflows this year as of June 30, has returned 6.80%, just slightly below its peers so far this year, according to Morningstar. Its three- and five-year returns fall into the second quartile in performance, Mr. Kinnel said. But during the last market downturn in 2001-2002, many people got the impression that American Funds was “bear-market proof,” because it dodged the tech bubble by focusing on dividends and value, Mr. Kinnel said. “People misinterpreted a big part of why they sidestepped the bear market in 2001/2002,” he said. While American Funds was losing assets in many of its funds, it also failed to place any of its funds in the top-ten in terms of biggest inflows, according to Morningstar. Chuck Freadhoff, a spokesman, declined to comment. The fund with the biggest outflows so far this year is Fidelity Investments' Fidelity Equity Income Fund Ticker:(FEQIX), according to Morningstar. The fund had $4.45 billion in outflows. Noting the continued attractiveness of bonds, Pacific Investment Management Co. Inc.'s Total Return Fund Ticker:(PTTAX) has had biggest inflow so far this year, bringing in $20.94 billion. Pimco's Unconstrained Bond Fund Ticker:(PFIUX), which was launched in 2008, also made the list of the top 10 funds in inflows so far this year, bringing in $5.52 billion. “The key to drawing in flows is to put ‘Pimco' in the name,” Mr. Kinnel said.