Advisor Blog

Another recent article in Investment News addressed outflows from American Funds due to real or perceived performance issues. In the article, American Funds spokesman Chuck Freadhoff stated "We don't feel that over the long term, investors will do as well with a passive investment as they will active management, and we have the long-term track records to back that up."

We disagree with Mr. Freadhoff, so we looked for the "long-term track records" that he mentioned. In doing so, we found this document. At first glance, it looks impressive. But, upon further examination there are some glaring issues. First, the performance numbers on the first page don't take sales loads into account. That's misleading, since most investors in these funds pay them. At least that is disclosed at the top of the page and the second page contains load-adjusted returns. A bigger issue, however, is comparison to inappropriate benchmarks. For example, comparing value funds to the S&P 500 Index (dominated by growth companies and, at best, a blend of growth and value). American Funds could have chosen a value index, like the Russell 1000 Value, but that wouldn't have made the comparison look as good. Even more egregious is the comparison of their emerging markets fund to a world ex-US index instead of an emerging markets index that would have shown that it underperformed. This is very misleading.

Our portfolio model performance has been updated through March 31, 2011.  To view it, click here, read the disclosure, scroll to the bottom of the page, and click on the accept button.  The update shows model performance net of fund expenses and advisory fees for 1, 5, 10, and 20 year periods and for annual time periods.  It also shows 20 year standard deviation results for each portfolio.  Standard deviation is a common measure of portfolio risk as measured by the variability of portfolio return.

As a comparison, we show the results of benchmark indices, including the S&P 500, MSCI World ex-US, MSCI World Small Cap, MSCI World Value, Intermediate Bond, and 3 month US Treasury Bills.