American Funds Splits Managers After Record Sales (Update2)

(Adds fund consultant's comment in sixth paragraph, other

companies closing funds in 10th.)

By Aaron Pressman

March 4 (Bloomberg) -- American Funds, the best-selling U.S.

mutual fund company last year, split its fund managers and

analysts into two groups to help maintain investment performance

as assets ballooned to more than half a trillion dollars.

More than 100 employees at Los Angeles-based Capital

Research & Management Co., which runs the American Funds, will

now work in two unnamed groups, spokesman Chuck Freadhoff said.

Each includes investment professionals with varying degrees of

experience and cuts across all 29 mutual funds.

``People work better in smaller groups,'' Freadhoff said.

``With our growing size, we thought this was the best way to

continue to deliver good results.''

American Funds, with total assets of $530 billion at the end

of 2003, brought in a record $65.6 billion for its stock and bond

funds last year, according to an estimate from Financial Research

Corp. in Boston. That amount is more than one-quarter of the

entire industry's $230.9 billion of net inflows. In January, the

company attracted $11 billion.

Increasing size hasn't blunted performance, according to

Burton Greenwald, a fund consultant in Philadelphia.

Avoiding Fads

American has ``avoided bringing out funds on every fad or

fashion,'' he said in a telephone interview. ``So they haven't

fragmented their research resources or portfolio management

capability.''

The company's sales are benefiting from superior performance

during the three-year bear market as well as a stronger desire by

investors to seek financial advice before buying a fund.

American's stock funds fell an average of 32 percent from March

2000 to October 2002, the second least among the 25 biggest fund

companies, according to Boston research firm Kanon Bloch Carre.

The $70.7 billion Growth Fund of America was the company's

biggest fund at the end of January. It gained an average of 7.9

percent a year over the past five years, better than 86 percent

of similar funds, according to Bloomberg data.

American is the third-largest U.S. fund company, trailing

only Fidelity Investments in Boston and Vanguard Group in Valley

Forge, Pennsylvania. Unlike Fidelity and Vanguard, American sells

its funds only through intermediaries such as brokers and

financial advisers.

Fidelity, Vanguard

Fidelity and Vanguard have chosen to close some of their

largest funds when assets grew. Vanguard today said it would

close the $23.6 billion Vanguard Primecap Fund and $7.5 billion

Vanguard Capital Opportunity Fund to new investors. Fidelity's

$68.3 billion Magellan Fund has been closed since 1997.

Previously, all Capital Research fund managers and analysts

for the mutual funds worked together in one group sharing

investment ideas and research. Under the new plan, ``everything

will be separate,'' Freadhoff said, including trading desks.

American already assigned multiple managers to each of its

funds. Unlike other companies that use teams to run funds,

American gave each team member sole responsibility for a portion

of a fund's assets.

At Fidelity, a single manager is assigned to oversee each

stock fund. All managers can draw on research from the firm's

hundreds of equity analysts. At Vanguard, most of the firm's

stock funds are invested according to indexes without input from

managers. Other Vanguard funds are run by outside sub-advisers.

Capital Research is a unit of the closely held Capital Group

Cos., which also manages more than $200 billion for wealthy

investors and institutions like pension funds. Capital Group

separated analysts and managers for mutual funds from those

overseeing assets for other clients in 1998.

Amid the ongoing state and federal investigations of

improper mutual fund trading, American and Capital Research

haven't been accused of wrongdoing.

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