MutualFundWire.com: Marketing, Not Performance, is Sinking Cap Group

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Wednesday, July 10, 2013

Marketing, Not Performance, is Sinking Cap Group

Morningstar's John Rekenthaler can't get enough of Capital Group [profile] and Vanguard [profile] this week. He continued to compare the two firms in his latest column, only on performance instead of office culture and investment products.

Capital Group's American Funds have had heavy outflows but its 10 and 15 year numbers are strong and better than Vanguard's, gaining 7.96 percent in the past 10 years and 6.32 percent in 15 years as Vanguard gained by 7.95 percent and 4.79 percent respectively.

Rekenthaler says the numbers owe to the fact that American Funds was perfectly positioned for the bull stock market of the 1990s but since it lost its edge to Vanguard after its equity funds started performing badly after the 2008 financial meltdown.

American Funds also didn't make an effort to woo the media, Rekethaler pointed out, or make a strong enough effort to crack the 401 (k) marketplace. American Funds' failure is a symptom of a problem other than performance, Rekenthaler says:

American Funds is struggling because of distribution and marketing decisions, not because of performance. This is relevant because American Funds is often held up as an example of the failure of active fund management. But that is not so, and to interpret American Funds' business difficulties as a comment on the issue of active versus passive management is to misread the data.