Watch out, Vanguard. Capital Group wants the active investing crowd to up its game.
The group, which has about $1.2 trillion of investor and institutional assets under management (or roughly half of Vanguard's global AUM) in its American Funds and other products, released a study on Monday highlighting how often its funds have beaten the S&P 500. It's also beefing up its sales force in the hopes of stemming recent outflows and finding more ways to work with financial advisors.
According to Capital Group, the American Funds general sales force, which works with all types of financial advisors, will be expanded to 145 from 115 over the next six to eight months. The organization also has a separate group of institutional wholesalers, 10 of whom focus on the RIA channel.
"Recently, conversations about investing have become too narrowly focused," said James F. Rothenberg, chairman of Capital Group, in a press release. "It has become apparent that there is only one voice out there, a voice contending that passive investing is more attractive. We need to challenge that assumption."
Numbers in Focus
Overall, actively managed funds outpaced the S&P 500 47% of the time from 1993 to 2012. But, Capital Group believes, investors have a lot to gain by focusing on active managers that "add value" and beat the benchmark.
"Most of both the academic work and the cited references about passive investing use comparisons that are extraordinarily broad," Rothenberg said. "They take the whole mutual fund business and say that, on average, active managers do not outperform. However, we believe that if you look beneath all the data and ask the question not as, 'Do money managers underperform?' but turn it around the other way and ask, 'Are there certain managers who show a sustainable ability to outperform?' the answer is 'yes.'"
Capital Group's research looked at the results of 17 equity funds, excluding those in the moderate and world-allocation categories. Looking at one-year average performance, it found its funds topped the S&P 500 57% of the time between 1934 and 2012. That figure rose to 67% for a five-year average and 98% for a 30-year average.
Since 2003, the average one-year performance of equity-focused American Funds outpaced that of the S&5 500 58% of the time. The three-year results topped the index 77% of the time.
"The choices investors and their advisors make concerning the investment managers they hire can have important long-term consequences," Rothenburg said.
Comparing retirement portfolios with $500-a-month contributions over the past 30 years, an investor in American Funds (after deducting fees and expenses) would have had nearly $1.1 million versus about $805,000 for the index-dominated portfolio — a difference of about 35%.
