Digging Into Manager Overlap at American Funds
Tracking the web of the family's interlocking managers can be a complicated task.
American Funds is one of the most integrated mutual fund firms around. Because Capital Research and Management, the advisor to American Funds, frequently assigns portfolio managers (called portfolio counselors by the firm) to multiple funds, American's offerings often hold individual stocks in common. We recently looked at the interconnected nature of the funds and their portfolio managers, as well as how those connections may affect diversification between the funds. That's not to say that managers assigned to multiple funds will hold identical securities at each fund. The managers are restricted to some extent by each fund's unique mandate. However, it makes sense that funds with several managers in common may also have significant overlap given each portfolio manager's finite number of "best ideas."
But with so many moving parts, examining manager overlap between funds proves to be a complicated task. We simplified the process by limiting our study to the firm's equity funds. There are currently 53 managers listed across American's 13 equity offerings. Figures 1 and 2 show the linkages between the firm's U.S. and global/non-U.S. funds, with each fund serving as a "hub" and the managers as the intertwined "spokes." The more complicated Figure 3 displays the links between the firm's domestic- and international-equity offerings--they're not easy to find on the chart, but at last count, there were 11 managers currently serving on both U.S. and non-U.S. funds.
Source: Morningstar data.
To a large extent, the results conform to expectations: More shared managers between funds generally results in greater portfolio overlap. For example, Growth Fund of America shares three managers with American Funds Fundamental Investors (ANCFX), more than any other fund to which it is connected. Despite different mandates and separate Morningstar categories--large-growth Growth Fund of America seeks companies with strong growth opportunities while large-blend Fundamental Investors gravitates to turnaround stories and lower-quality companies--Growth Fund of America has a 40% common-holdings score with Fundamental Investors. (American has an average 18% common-holdings score across all of its equity funds.) The foreign large-blend EuroPacific Growth has a similar story. It shares four managers with the diversified emerging-markets fund, American Funds New World (NEWFX), and has a 38% holdings-similarity score with that fund.
Source: Morningstar data.
A few other examples stick out. For example, American Funds SMALLCAP World (SMCWX) is notable for its lack of overlap with any international or global siblings. Only three of its 13 managers are connected to any other international/global fund, though four of the others also manage assets for the firm's U.S. funds. That likely owes to the fund's unique mandate at the firm. None of American's other offerings focus on small- and mid-cap stocks. The fund's average $1.6 billion market cap is far smaller than any of its siblings', and it has among the lowest common-holdings scores with other American equity funds.
The diagrams may also help investors identify some of the firm's strongest (or at least most versatile) managers, based on the number of funds that they manage. American has historically tried to keep workloads manageable by limiting managers to three fund assignments. However, there are currently two managers working overtime: Mark Denning manages five separate funds, while Carl Kawaja has four. Both are foreign-stock specialists who also serve on two predominantly domestic stock funds. In addition to managing assets for American Funds Capital World Growth & Income (CWGIX), EuroPacific Growth, New World, and SMALLCAP World, Denning also manages assets for the U.S.-focused American Funds New Economy (ANEFX). Kawaja joined the Growth Fund of America roster in late 2011 to fill a foreign-stock niche in that U.S. large-growth fund (he also serves as a manager on EuroPacific Growth, American Funds International Growth & Income (IGAAX), and New World).
All this demonstrates the flexibility of American's approach and the interchangeability of its portfolio managers. But, particularly for those investors holding multiple American Funds equity offerings, it should also serve as a reminder of the need to consider just how much overlap and diversification the firm's equity funds offer relative to one another.
Janet Yang Rohr, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.