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Greener Pastures

Dale Harvey left the burdens of managing $20 billion for Capital Group to form his own boutique inspired by Thomas Jefferson.

Rob Wherry, 08/26/2013

This article originally appeared in the August/September 2013 issue of MorningstarAdvisor magazine. To subscribe, please call 1-800-384-4000. 

Dale Harvey didn’t like being popular. In the mid-2000s, Harvey found himself managing $20 billion in mutual fund assets for Capital Group, the parent firm of American Funds. Harvey had built up solid records running diversified sleeves of several team-managed funds such as Washington Mutual AWSHX, SMALLCAP World SMCWX, and American Balanced ABALX. His work hadn’t gone unnoticed by investors and his colleagues. Each morning, it seemed, he came into the office to find that the lead manager on the funds had earmarked more inflows for him to invest. Most managers wouldn’t mind having such a problem. But Harvey considered it a burden.

For starters, he often couldn’t build full positions in the out-of-favor companies he preferred without tripping over restrictions on how many of the outstanding shares he could buy. Investing millions of dollars at a time, he also ran the risk of artificially popping stock prices. Most concerning to Harvey, though, was the idea of buying stocks he didn’t have high conviction in.

“I had to put the money to work. I was managing $20 billion, but I didn’t have $20 billion [worth of] good ideas,” he says. “I would buy all the shares I was allowed to buy, and it was just a half position.”

To Harvey, it became clear there was just one solution: leave the firm he had called home for 16 years. What he was contemplating was a drastic step, both on a personal level and from the perspective of his employer. Manager turnover is low at Capital Group, which is reflected in the fact that 91% of its almost $1 trillion in retail mutual fund assets are run by managers with tenures greater than 15 years.

“It’s like being a professor,” says Harvey of his former employer. “Nobody ever leaves.”

Always a contrarian, Harvey gained inspiration for taking such a leap from a somewhat odd source: Thomas Jefferson. Growing up in Virginia, he knew well the story of Jefferson and Monticello, the plantation that served as the third president’s home for most of his life. Harvey, though, found himself reminiscing about Jefferson’s lesser-known estate, a retreat 100 miles away called Poplar Forest that Jefferson used to escape the crowds at Monticello.

The parallels were obvious to Harvey—his new firm would be his version of Poplar Forest, with him and a small team of analysts running money far from the glare of the spotlight. To carry the analogy further, Harvey would be free to invest in a portfolio of stocks that were largely off the beaten path. The kicker: Poplar Forest would make a great name for the new firm.

Rob Wherry is a mutual fund analyst with Morningstar.

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