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Fund Times: American Funds Shuffles Managers

Plus, news on Gabelli, Fidelity, Van Kampen, AIM, Leuthold, Baron, and more.

Morningstar Analysts, 03/10/2006

As a part of a broad plan to split its investment staff into two identical research organizations, the fund boards of American Funds American Balanced ABALXAmerican Funds Investment Company of America AIVSX, and American Funds Fundamental Investors ANCFX each approved changes to their manager lineups recently.

The idea behind the division is to spread out decision-making responsibilities among more people so that the growing firm can mitigate the frictional costs of buying and selling larger blocks of shares. Each of the firm's portfolio managers and analysts is now assigned to one of two new organizations. This news indicates that each fund board has hired one of the groups as its advisor.

The most notable change occurred at Fundamental Investors. As a part of its manager shakeup, the fund is losing one of the firm's most well-known managers, Gordon Crawford, a 30-year veteran of the firm. Although the firm's fund managers don't seek the limelight, Crawford's name has come up in the press because of his reputation for being among the most influential media investors on the buy side. For example, several publications reported that Crawford played a role in getting Steve Case to step down from his post as Time Warner's TWX chairman in 2003. Brady Enright and Ronald Morrow are filling Crawford's shoes on the fund. Crawford will remain at the firm and his other funds, including American Funds Growth Fund of America AGTHX, American Funds New Economy ANEFX, and American Funds Smallcap World SMCWX.

At American Balanced, Alan Berro and Dina Perry have replaced J. Dale Harvey. Unrelated to the split plans, which won't affect the fixed-income department, James Mullaly has taken the spot of fellow bond boss Mark Macdonald on American Balanced. Perry and Harvey have essentially swapped posts, as Harvey will be taking her spot in the mix of managers at Investment Company of America.

None of these changes are particularly disruptive, but it does illustrate just how significant the split is to the firm's internal workings.

Justice Department Faces off with Gabelli

As reported by The Wall Street Journal, the U.S. Justice Department is joining a lawsuit against Mario Gabelli. The lawsuit claims that Gabelli, portfolio manager of six distinct retail mutual funds and CEO of Gabelli Asset Management Co., created "sham" companies to bid on FCC cellphone licenses between 1995 and 2000, under rules favoring small and minority-run businesses. Allegedly, Gabelli then resold the licenses for a profit.

The lawsuit claims Gabelli received $160 million in discounts and financing breaks for which he wasn't qualified from the FCC, the Journal reported. Gabelli might have to pay the government triple that amount, or $480 million, under the False Claims Act if he loses the case. If the government joins the case, it could seek an additional $205 million in profits Gabelli allegedly made, according to the Journal.

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