Privately owned Capital Group is one of the world’s most experienced investment management companies. Founded in 1931, it has grown to be the seventh-largest asset manager with assets under management (AUM) of $1.35 trillion as of Dec. 31, 2015. The Capital Group offers a full range of financial management services to wealthy individuals, retirement plans, pension plans, institutional investors and nonprofits. Through its American Funds division, it offers a wide range of mutual funds to retail investors.
The Capital Group does not present its people by their management titles with the company. Instead, they are presented as a seven-member management committee. Committee members have an average tenure with the company of 31 years. Five of the committee members, including Chairman Tim Armour, are listed as being active portfolio managers.
A photograph of the management committee does not show a diverse group of people. However, Capital Group does make a strong statement regarding diversity and inclusion being an important part of its corporate culture. The firm actively partners with The Posse Foundation, the Forte Foundation and The Robert Toigo Foundation. These organizations work with colleges and business schools to develop and direct minorities toward careers in business and finance.
Many employees have long careers with the company. The portfolio managers have at least 10 years with the firm and average more than nine years working with their particular investment funds. Many of the investment professionals have worked for Capital Group for their entire careers.
All portfolio managers and investment analysts work in teams. However, investment decisions are not made by committees. Portfolio managers and analysts are each assigned a portion of assets to invest as individuals. The firm believes a portfolio based on individual managers’ and analysts’ commitment to their best ideas results in better returns and a safer portfolio.
The firm does have an overall investment approach that favors long-term returns and preservation of capital over short-term gains. To strengthen its philosophy, a large portion of an investment manager’s compensation is based on his/her individual returns over four-year and eight-year time periods.
Classes of Assets
Capital Group is a traditionally conservative asset manager. While it does have a private equity division, it does not present itself as a derivatives trader. The vast majority of assets managed are publicly traded equity and fixed-income securities, both foreign and domestic.
The retail face of Capital Group is American Funds. The oldest American Fund, The Investment Company of America, has been available since 1934. The firm’s main set of 34 mutual funds covers all equity and fixed-income asset classes. American Funds now offers a series of funds designed to meet investors' targeted needs such as saving for college or retirement income. These new funds are all “fund of funds." Rather than investing directly in securities, assets are divided among the original 34 funds according to investors’ goals.
American Funds has multiple classes of fund shares. One group of classes is intended for retirement plans or wealth managers, and the second group is for commission-based brokers or retail investors.
The first group of share classes have low fees and returns that are favorable compared to both peers and comparative indexes. These share classes are excellent vehicles for retirement plan investors.
The second set, Class A and Class C shares, have either front-end loads or 12b-1 fees that raise money for paying commissions. These sales charges negatively impact returns. Investors should seriously consider whether the value they receive from their broker is worth the cost.
Capital Group’s conservative nature caused the firm to fall behind the times in products offered, which caused investment returns to drop. Clients were leaving and AUM was falling. The firm did a top to bottom evaluation; it kept what worked and changed what did not work. New products were created, and returns went up. Clients started coming back, and AUM has risen rapidly for the last few years.
The Capital Group has thrived through every challenge the economy has presented for 85 years. It may still be serving investors in another 85 years. It is a great firm for patient long-term investors. People who invested in The Investment Company of America back in 1934 would have received an annualized total return of 12.06%; most investors would be thrilled with that level of return today.