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Fund Times

An American Funds Bond Fund Gains 2 New Comanagers

Plus, USAA jettisons GMO on USAA Income Stock, and a new comanager on Gold-rated Jensen Quality Growth.

Earlier this month, Capital Research made some manager changes to  American Funds Intermediate Bond Fund of America (AIBAX), which has a Neutral Morningstar Analyst Rating, in an effort to boost the fund's lackluster returns.

Longtime comanager David Hoag, who had been a named manager on the $9.3 billion fund for more than a decade and had managed approximately 30% of the fund, was reassigned to focus his energies on the $4.5 billion, Neutral-rated  American Funds Short-Term Bond Fund of America (ASBAX), which he has managed since 2006. Replacing him were David Lee and Fergus MacDonald, who are focusing primarily on corporate bonds and mortgages, respectively. Longtime managers John Smet and Mark Brett, who manage more-diversified sleeves of the portfolio, remain on the fund. They also serve as members of Capital Research's Portfolio Strategy Group, which in early 2013 started setting more-explicit parameters for all American Funds bond funds, including duration, curve positioning, inflation protection, credit, and sector weightings.

Although American Funds' multimanager approach lessens the impact of the change, it is a sign of several steps that Capital Research has been undertaking to boost its fixed-income effort. Lee and MacDonald are charged with shining a light on which offer the most attractive opportunities: corporate bonds, mortgages, or government bonds. Brett and Smet each run roughly 30% of fund assets, and Lee and MacDonald each will manage roughly 15% of fund assets. They have the flexibility to own U.S. Treasuries.

Both Lee and MacDonald have had long careers at Capital Group. Lee joined the firm in 2000 and has taken on increasing investment-grade, credit-related portfolio management duties since 2007. MacDonald joined the firm in 2007 and has served as a manager on the minuscule American Funds Mortgage 529A (CMFAX) and the $6.2 billion American Funds U.S. Government Securities (AMUSX) since 2010.

USAA Drops Subadvisor GMO
USAA has parted ways with subadvisor Grantham, Mayo, Van Otterloo & Co. at USAA Income Stock (USISX). GMO comanagers Tom Hancock and David Cowan left the fund on Oct. 23, 2013.

A variety of GMO managers had contributed to the fund since 2003, running a sleeve with roughly one fourth of the $2.5 billion fund's assets. The firm followed a valuation-driven, quantitative approach. Its sleeve focused on quality stocks, which have offered protection in down markets but have tended to lag in rising markets. For instance, the firm's large-blend offering, Bronze-rated  GMO Quality (GQETX)  (also comanaged by Hancock and Cowan), lost less than nearly all peers in 2008 but lagged most peers as markets rose during the five years through Nov. 25, 2013. USAA Income Stock lagged most peers during the trailing five years as well.

USAA divided GMO's sleeve between the fund's two remaining managers: subadvisor Epoch Investment Partners and USAA's in-house management team. The change was designed to increase the fund's dividend focus, according to a supplemental prospectus issued by USAA.

Gold-Rated Jensen Quality Growth Adds Comanager
Recently, Jensen added Adam Calamar as a comanager on Gold-rated  Jensen Quality Growth (JENSX).

However, the move simply reflects that Calamar, who joined Jensen in 2008 as an analyst, has worked his way up to voting status on Jensen's investment committee and thus has earned a portfolio manager designation. It's a minor move, and it's a standard one at Jensen, which has a distinctive culture and hires every analyst with the expectation that he or she will eventually be elevated to committee member. In fact, Calamar is the seventh manager on Jensen Quality Growth, and those seven named managers comprise the firm's entire investment team.

Director of active fund research Michael Herbst, senior fund analyst Greg Carlson, and fund analysts Flynn Murphy and Robert Goldsborough contributed to this report.

Morningstar Fund Analysts does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.