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Rating:Rothenberg True to Lovelace Legacy Not Rated 5.0 Email Routing List Email & Route  Print Print
Friday, June 29, 2007

Rothenberg True to Lovelace Legacy

Reported by Sean Hanna, Editor in Chief

In what must be the biggest mutual fund non-news of the week, Capital Group Chairman James Rothenberg told advisors at the Morningstar conference that the advisor to American Funds has no plans to diversify into hedge funds or exchange-traded funds. One would expect that only a still-wet-behind-the-ears advisor would even think to ask the question. Still, that did not stop Reuters from picking up Rothenberg's answer and Ignites from running with it.

"Following the crowd is rarely the recipe for unique outcomes nor is it particularly courageous," Rothenberg said in response to the query.

That answer is entirely within character.

American Funds -- as its mutual fund rivals have learned -- is nothing if not courageous in sticking to its core strategy (or what some would describe as its brand). The Los Angeles fund group has long been known for three things: its value-based stockpicking strategy, its devotion to team-focused, non-star-driven portfolio management and its fidelity to the advisors that sell its funds. A foray into ETFs would dilute both of the first two aspects of its brand: there is no room for active stock picking in ETFs and no-need for its deep-bench of analysts in ETFs.

Capital Group stuck to its value-driven focus even during the dotcom blow-off of 1999-2000. Surely, the siren call of growth funds was as alluring then as the call to hedge funds and ETFs is today.

As the firm has grown, it has also stuck to a portfolio management model of creating teams of analysts who each take control of a portion of a fund. That portfolio management model dates back to Jonathan B. Lovelace, a former stock analyst who founded the firm in 1931 (he died in 1979). Lovelace was also known for steering clear of fads and trends -- something that has stock with the firm to this day. Lovelace, one would presume, would consider both ETFs and hedge funds to be trendy and perhaps also fads.  

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