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American Funds Plans Rare Rollout

Plus, AMG's shopping spree, manager changes, and more.

Morningstar Analysts, 07/28/2008

Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Advisor Workstation Office Edition.

A new fund is on its way from American Funds. In keeping with the firm's record of avoiding trendy or overly narrow fund launches, the new fund, called American Funds International Growth and Income, will invest in a broad range of companies abroad, including some in the developing world. Management plans to limit the fund's stake in domestic stocks to 10% or less of the total pie.

Rollouts for this mutual fund titan have been few and far between in recent years. In fact, the only funds that American has introduced in the past 10 years have been American Funds New World NEWFX in 1999, American Funds Short-Term Bond Fund of America ASBAX in 2006, and its series of target-date funds last year. Although the firm has a number of established domestic-stock funds and a trio of funds that fall into Morningstar's world-stock category, American Funds EuroPacific Growth AEPGX is its only other foreign large-cap offering.

Initially, the fund will divide its assets among three portfolio counselors from Capital Research and Management's skilled ranks: Steven Watson, Carl Kawaja, and Andrew Suzman, who already have 18, 17, and 15 years of experience, respectively, as portfolio managers and research analysts at the firm. Watson has run a slice of moderate-allocation fund American Funds Income Fund of America AMECX since 1994 and world-stock offering American Funds New Perspective ANWPX since late 2005. Kawaja has also managed a portion of New Perspective along with the emerging-markets-focused American Funds New World since 1999, and he took on management duties at EuroPacific Growth in 2001. Suzman has picked stocks at Income Fund of America since 1995.

According to Capital Research custom, each manager will run his separate portfolio independent from the others. Unlike some of its siblings, the fund will not include a portfolio of stocks run by the research team. The firm has not yet disclosed the fund's expected annual costs.

AMG Expands Collection
Affiliated Managers Group has agreed to purchase a 60% equity interest in New Jersey-based international boutique, Harding Loevner. Founded in 1989, the shop currently manages $6 billion in international, developing markets, and global strategies. The firm is best known for its diversified emerging-markets fund, Harding Loevner Emerging Markets HLEMX, which is approaching its 10-year anniversary. Manager Rusty Johnson and team built a successful long-term record here by employing the firm's trademark high-quality growth style in buying not only established companies but also lesser-known stocks and mid-caps. With $2.2 billion in assets, the fund dwarfs its next largest charge, the foreign large-growth offering Harding Loevner International Equity HLMIX.PAGEBREAK

We don't expect this transaction to have a noticeable impact at the fund level. AMG's more than 20 affiliates--including such distinguished money managers as Third Avenue; Tweedy, Browne; and Friess Associates (advisor to the Brandywine funds)--operate independently. The firm also announced that its leadership team has committed to remain onboard for a decade or more, and long-term employment contracts are in place. With the rest of the investment team continuing on, shareholders can expect business as usual here.

AMG will also acquire Boston-based Gannett Welsh & Kotler, an asset-management unit of the Bank of New York Mellon. The 34-year-old shop runs more than $7 billion in municipal-bond, core taxable fixed-income, and small- and multicap equity strategies. Gannett Welsh & Kotler also manages three mutual funds in the BNY Hamilton fund family: BNY Hamilton Multi-Cap Equity BKMCX, BNY Hamilton Small Cap Core Equity BNPAX, and BNY Hamilton Municipal Enhanced Yield BEYIX. AMG will purchase the Bank of New York Mellon's entire ownership interest in the firm.

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