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Rating:Is The American Funds Growth Fund a Email Routing List Email & Route  Print Print
Tuesday, October 02, 2012

Is The American Funds Growth Fund a "Closet" Index?

News summary by MFWire's editors

Jason Kephart of Investment News writes that the American Funds Growth Fund of America tracks its benchmark now more "closely than ever before," so much so that it might be better the American Funds Index Fund of America.

Kephart notes that the fund, according to Morningstar, Inc., has the "dubious distinction" of having a three-year R-squared of 98 to the Russell 1000 Growth Index, up from 77 five years ago. The R-squared measures the strength of a statistical relationship. The higher the number, the closer the relationship between two variables.

Hence, generally speaking, a fund that is highly correlated to its benchmark index if its R-squared reaches 90.

At 95, it is considered a ”closet” index fund.

Brendan Clark, president of Clark Capital Management Group, said he does not think that the Capital Group managers have a choice. He said: "You could certainly take the position that they're closet indexers, but it's the underlying condition of the market that's causing it."

To read more about Kephart's analysis of the fund, go to the Investment Newswebsite.  

Edited by: HFD


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