Capital’s Unique Asset-Managing Setup : Securities: Several people share in directing each fund’s investments. Even though philosophies can conflict, long-term results have been good.
In a typical Capital Group mutual fund, bulls, bears and in-betweens all get their way, at the same time. And when their conflicting strategies are added together, somehow the results often beat the average fund over the long haul.
Unlike most fund companies, which let a single manager direct a fund’s investment strategy, Capital splits each fund’s assets among three to five people. They can run their individual slices any way they choose, even if the strategies are diametrically opposed.
Why has such a potentially explosive system worked so well? James K. Dunton, executive vice president of Capital Research and senior manager of the firm’s $5-billion Washington Mutual growth-and-income fund, admits that “logic would tell you that you have to reconcile the strategies.”
But in fact, Dunton says, patience has proved to be the smarter course. In a single portfolio, over the short term the conservatism of the bears will mute the bulls in an up market. And in a down market, the aggressiveness of the bulls will hurt the wiser bears.
Over the long term, however, the results have evened out for many of Capital’s funds at an above-average level of returns, and at lower risk to shareholders.
R. Michael Shanahan, president of Capital Research, believes that the success of the system is rooted in the simple idea of letting an individual follow his or her convictions without constant second-guessing from above. Managers are formally reviewed once a year rather than quarterly.
“It’s an outgrowth of providing the right environment for people,” Shanahan says. “The focus is on letting individuals do what they do best. It works.”
At the same time, individual managers don’t lock themselves away in their offices. “There is great empathy in the organization for each other,” says Dunton. Discussion of market and stock-specific information is constant among staffers, he says.
“But when it comes to the final decision to buy or sell, it’s your own,” Dunton says. And it doesn’t hurt that each manager’s bonus is tied to his or her performance.
Not every money manager can survive under Capital’s system, its executives admit. Those whose performance lags for too long can find themselves out of work, as at any other firm. But Capital’s low employee turnover rate, coupled with its strong fund performance, indicate that the system works for both manager and investor.
“It’s a lot like creating hollandaise sauce,” Dunton says. “You have to do it slowly, or it doesn’t work.”
HOW THE BILLIONS ARE SPREAD
Capital Group’s assets are split among three main subsidiaries:
* Capital Research & Management runs the American Funds group of mutual funds: 24 stock, bond and money-market funds with $32 billion in assets and more than 2 million shareholders. The funds are sold only through brokers and financial planners. Typical minimum investment: $1,000.
* Capital Guardian Trust manages $19 billion for more than 100 institutional clients, including L.A. County Employees Retirement, San Diego County Employees Retirement, Orange County Retirement, Notre Dame University, Sloan-Kettering Cancer Center, Screen Actors Guild, GM, Boeing, Comsat and PG&E.;
* Capital Group International manages $4.2 billion for foreign institutional clients. Foreign staff and research offices are located in Tokyo, Hong Kong, Geneva and London.
