American Funds: Closet Indexer & Great Marketer
By Bryan Binkholder on Nov 09, 2009 in Mutual Funds
(click on title to watch video)
American Funds is a mutual fund that is widely recommended by most brokers and firms due to their past performance of being at least ‘decent’ with their returns (when you figure in all costs). The problem is that now American Funds holds over 880 Billion in assets and its size is making it increasingly unable to perform. Let alone that it’s a mutual fund and they won’t beat indexes over time with all costs figured in.
http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20091101/REG/311019962&ht=american%20funds
So if american funds have 880 billion under management and most of their funds are loaded funds charging a fee of 4% then they collect around 35 billion in fees each year from investors? That is one heck of a racket just to throw darts at a board of large US and international companies. Hence while there will always be crashes and downturns cause the door is not big enough for one of these huge funds to get out at one time let alone have them all runing for the doorway at the same time.
Right and Wrong. The Sales charge occurs when someone purchases the fund so yes that money was made but it was made by the Brokers that sold it. American Funds gets the roughly 1% management fee for their managers to try and buy and sell to beat the market. I can’t do math that high but its a lot of money. The sad thing is that brokers and firms are then compensated for ’shelf space’ just like a grocery store. They pay the firms big dollars to have their products be part of ‘preferred groups’ of funds. Check out this page from Edward Jones and click on both PDF’s. They money they kick back to the firm is incredible.