Capital Group finally moved its entire lineup to NTF platforms, but Morningstar's Alec Lucas says the firm remains committed to working with financial advisors.
Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm here today with Alec Lucas, he is an analyst on our manager research team, to look at Capital Group and their year in review.
Alec, thanks for joining me.
Alec Lucas: Thanks for having me.
Glaser: So, Capital Group, the parent of American Funds, the big, big story this year has to be that they are allowing a lot of their funds on these no transaction fee platforms available for no load. Let's talk about that first. Are they kind of too late to this party in offering these funds on these NTF platforms?
Lucas: Well, they are definitely late to the party. I'm not sure I would say they are too late. And it's not just a lot of their funds; it's their entire lineup. And this is really a seismic shift. I mean, Capital group has long had a commitment to financial advisors, to working through them and to offering load versions to retail investors. And amid the changing distribution landscape in the mutual fund world in large part affected by the coming fiduciary rule which will take effect in April 2017, they decided to make their entire lineup available through no load F1 shares on the platforms of Fidelity and Schwab, that happened in September. And it's a big change. They remain committed to working with financial advisors, but they recognized that the nature of financial advice is changing in the current world of robo-advisors and so forth. So, it's a big shift and it makes the lineup more available for investors who before might have avoided it because they didn't want to pay a load.
Glaser: Now, this is a relatively new phenomenon, but any early signs that there has been kind of big uptakes of these no-load shares or that advisors are feeling a little bit left out in the cold? What's been the early reception?
Lucas: It's so recent that I haven't had a chance to delve into that. But there has been a lot of interest on Morningstar's site, I think, on the material that we've published on this. So, that bespeaks a significant interest.
Glaser: Looking over the entire year, what's been happening with fund flows at Capital Group? Have they continued to see some outflows? What's happening there?
Lucas: Yeah, they are seeing outflows less than in years past. They are still a very large fund family. They are the second biggest with about $1.3 trillion in assets under management. But yes, as with a lot of active equity shops and of course, they have fixed-income as well, they are struggling with outflows given the secular shift toward passive.
Glaser: Let's look at some big manager changes. Anything notable that you think is worth talking about here?
Lucas: Capital Group uses its multimanager system, so that makes manager changes less impactful, because what you're talking about is the replacement of one manager on a sleeve. There haven't been really any real noteworthy changes that would affect investors or the funds.
Glaser: And then looking at performance, what's done well so far this year?
Lucas: AMCAP is doing well. Growth Fund of America is doing well. In terms of international options, EuroPacific Growth is having a very good year.
Glaser: And then on the flip side, has anything kind of struggled to keep up?
Lucas: Yeah. A couple of funds that had a great 2015s, top decile finishes in their respective categories, New World and New Perspective. It's a new theme of struggling in 2016, but these are great long-term funds.
Glaser: So, it sounds like really the big new for Capital Group is that those no-load funds and kind of business as usual elsewhere?
Lucas: Yeah, they are embracing a no-load world, and so we'll see how that changes going forward.
Glaser: Alec, thanks for your insights today.
Lucas: Thank you.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.
