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Friday, May 18, 2012

Fundamental Change Comes to American Funds

News summary by MFWire's editors

Is the Lovelace era at Capital Group [profile] now a part of history? The core value of the Los Angeles-based mutual fund business was to never step between the financial advisor and the end investor. One outcome of this philosophy was the mutual fund firm's counselor system. That system put teams in charge of the American Funds portfolios and kept PMs from becoming their own brand.

Now there are increasing signs that the philosophy has shifted. The latest sign, which appeared in Reuters, is Capital Group's decision to tap several individual bond specialists to run its $33 billion Bond Fund of America.

Dexter Williams, senior vice president of fixed income at American Funds, summed it up when he told the wire service: "I'm not sure if we've changed or the world has changed."

The report explains that the change was decided on after the financial crisis revealed issues with the existing portfolio management system at the fund.

Under the new strategy, Bond Fund of America will now be run by several bond sector specialists who will dictate the allocations of the whole fund or will "signal" team members how to allocate money to the sectors, Williams said.

Jeremy Brothers, a mutual fund analyst at Raymond James and Associates, told Reuters:

"We are certaintly watching it closely. It's a different fund than it was in 2006 and 2007 leading up to the financial crisis."

According to data by Lipper, investors withdrew a net of $3.5 billion from Bond Fund of America last year and $3.3 billion in 2010, while US investors were investing new money into bond funds.

New PMs for the fund are Wesley Phoa, Mark Brett and Andrew Barth -- a mortgage-backed securities specialist, a global bond and currency expert, and a corporate bond expert, respectively.

David Daigle, the designated high yield bond counselor who joined the fund last year, will be calling the shots when it comes to picking securities in his area of expertise, according to Williams. 

Edited by: HFD

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