Truth Serum: American Funds Growth Fund (AGTHX)

InvestmentNews.com reporting: American’s flagship fund sinks active management

American’s flagship fund sinks active management

Actively managed mutual funds recorded $8.6 billion in outflows last year; investors pulled whopping $33 billion from Growth Fund of America

If you’re looking for a poster child for the struggles actively managed funds are facing today, you need look no further than the $122 billion American Funds Growth Fund of America (AGTHX).

American Funds’ flagship fund, which peaked at about $202 billion in assets in 2007, saw investors withdraw more than $33 billion last year. No other fund even came close to matching that amount of outflow. In fact, no fund family matched the outflow of that one fund. Fidelity Investments’ funds came closest, with net total outflows of $28 billion.

American Funds Growth Fund (AGTHX)

American Funds Growth Fund (AGTHX)

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We can see AGTHX has been hugging the S&P 500 Index until recently. Now it is clearly underperforming.

Next, we check the volatility of returns of AGTHX against the benchmark. A reading of 1 means the fund is the same volatility as the benchmark. If a fund is twice as volatile, it should go up (and down) twice as much as the S&P 500 Index. If it is less volatile, then it should go up (and down) a bit less.

American Funds Growth Fund (AGTHX)

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In Conclusion

Over the past year, AGTHX has hugged and now is underperforming the S&P 500 Index. Since August, they have decreased volatility to slightly lower than the benchmark.

American Funds Growth Fund (AGTHX)

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With an expense ratio of .68% AND a front load fee of 5.75% should your financial advisor even own this for you or their clients?

Our mantra here is, “You are better off doing it yourself because of the inherent conflict of interest over fees and management’s lack of skin in the game.”

The sad truth is that every single professional fund manager KNOWS he will probably NEVER outperform over the long haul. The real battle is over which firm grabs the most AUM (AKA “assets under management”, other people’s money, or OPM) through crafty marketing and the “averaging” of annual performance numbers (to hide the bad years) in order to haul in the fees.

The secret of our success is simple. Be your own hedge fund guy. It’s much easier than you think.