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Missing out on new inflows, American Funds parent launches sales push

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(Globalpost/GlobalPost)

By Ross Kerber

(Reuters) - Capital Group Cos Chairman James Rothenberg outlined a new effort on Wednesday to promote its American Funds lineup, left sidelined by client withdrawals even as investors edge back to other actively managed equity mutual funds.

With investors poised to put the financial crisis behind them, no fund family has as much potentially to gain from the shift as American Funds, with roughly $1 trillion under management.

But it posted an investor cash net outflow of $33.4 billion for the 12 months ended August 31, according to research firm Morningstar, including $11.6 billion in the first eight months of 2013, quite a come-down for the industry's third-largest company, excluding money funds and other vehicles.

Conversely, the trend to passive funds has boosted flows to companies such as indexer Vanguard Group of Pennsylvania, the largest mutual fund firm by Morningstar's measures with $1.7 trillion under management.

Rothenberg, in a rare interview, said on Wednesday that the pace of withdrawals has slowed lately, but he also described a raft of changes at the firm aimed at promoting sales. For one, Capital Group staff is now tasked with reaching out more to gatekeepers such as consultants who pick funds for retirement accounts.

He also said the Los Angeles company has changed job descriptions for many of the people in its 600-person distribution business so that they now interact more with companies such as insurers or fee-only financial firms that can help drive sales.

A chief goal is to counter what he called a widespread belief that investors no longer need actively managed equity funds, which make up 85 percent of American Funds assets. Lured by lower fees and competitive returns, investors have steadily added money to passive index funds and exchange-traded funds for years, a troubling trend for Rothenberg.

"That's a piece that both frustrates us and bothers us, and we think deprives people of an opportunity to earn more money over time," Rothenberg said.

Overall, actively managed equity funds have shown a resurgence of interest during the recent period of reduced market volatility. The sixth months ended June 30 marked the first such period since 2007 when investors added money to actively managed equity funds, about $50 billion, according to Thomson Reuters' Lipper unit.

Meanwhile, passively managed equity funds and exchange-traded equity funds had a positive net inflow during nearly the whole span.

Still, it is too soon to declare a lasting return of flows to actively managed equity funds, said Lipper Senior Research Analyst Jeff Tjornehoj. Of the positive flows lately, Tjornehoj said, "this is either an interesting phenomenon or an inflection point, we don't know which."

The future of active management is a central question both for American Funds and smaller asset managers with outflows including Janus Capital Group <JNS.N> and Legg Mason Inc <LM.N>.

Rothenberg acknowledged troubles, such as poor records for its $123 billion Growth Fund of America <AGTHX.O> in 2010 and 2011, years when the fund beat only 23 percent and 27 percent of competitors, respectively.

But it has come back since then, reflecting what Rothenberg called strengths in areas including research. It beat 93 percent of competitors in 2012 and was beating 64 percent of competitors this year through August 31, according to Morningstar.

American Funds also has faced challenges that include a lack of well-known bond funds. Its problems include "a little bit of everything," said Morningstar analyst Janet Yang.

While academics may be correct about the advantages of passive funds on average, the story doesn't fit American's strong long-term track record, Rothenberg said.

A Capital Group study found that American Funds led their indexes 67 percent of the time during every five-year period from 1933 to 2012, for instance covering "virtually the entire history of the mutual fund industry," according to the report.

(Reporting By Ross Kerber; Editing by Ken Wills)

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