Retail Foreign Fund Has a Better Record
Capital Group Cos. did a better job picking foreign stocks for its retail mutual fund investors than for its institutional clients in the last decade.
Through June 30, the company’s EuroPacific Growth fund, which is offered through the American Funds family, had outperformed the core foreign stock portfolio used by the company’s U.S. institutional investors over the previous year -- and the last three, five and 10 years, for that matter.
In the three years ended June 30, for example, the EuroPacific fund produced a total return (capital appreciation plus dividend income) of 4.3% annually.
The core foreign portfolio used by institutional clients at the company’s Capital Guardian Trust unit, by contrast, gained 3.3% a year in that period, before fees.
In the 10 years through mid-2004, EuroPacific gained 9.0% a year, compared with 8.8% for the Capital Guardian Trust account.
The company says its mutual funds and institutional accounts are managed by separate teams of portfolio managers and analysts worldwide. So EuroPacific’s six managers are free to pursue their own ideas, which could be significantly different from the foreign shares that the institutional managers are favoring.
Still, analysts note that the company as a whole is known for pursuing a “value” investing style, meaning it seeks to find solid companies with strong long-term growth prospects, while avoiding the temptation to overpay for shares that may be hot at the moment. Capital also is known for being a buy-and-hold investor rather than an active trader.
As of Aug. 31, EuroPacific had $41.9 billion in assets. The fund said its largest stock holdings included AstraZeneca, a drug giant based in Britain; Sanofi-Aventis, a French drug company; Vodafone Group, a global cellphone network operator based in Britain; oil titan Royal Dutch Petroleum Co.; and Danish drug firm Novo Nordisk.
The EuroPacific fund, which was launched in 1984, invests exclusively in foreign shares. Capital’s New Perspective fund, launched in 1973, invests in a mix of U.S. shares and foreign shares.
Capital’s mutual funds, including its U.S. and foreign stock funds, have been enormously popular with investors over the last year. The funds, which are sold only through brokers and other financial advisors, attracted $56 billion in net new assets in the first seven months of 2004, more than any other fund family, according to information tracker Financial Research Corp.
In part, Capital has benefited from a backlash against other fund companies that have been implicated in the abusive-trading scandal that has rocked the industry since last September. Capital has not been charged with wrongdoing in that scandal.
But the company is one of many fund firms under federal and state investigation for longstanding practices involving sales agreements with brokers.
Regulators are focusing on whether fund companies adequately disclosed revenue-sharing deals with brokers that tout their funds to investors.
Capital has said it is cooperating with the Securities and Exchange Commission and California Atty. Gen. Bill Lockyer in their probes.
