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May 2010
Don's Monthly Message:It's not always wise to go against your
own advice
Main Entry: ad·vise
Pronunciation: \əd–'vīs\
Function: noun
1: recommendation regarding a decision or course of conduct 2: information or notice given 3: an official notice concerning a business transaction
That's Merriam-Webster's definition of advice and Capital Group's Martin Romo knows that the definition is incomplete.
The story of Capital Group.
For seventy-nine years Capital Group has been delivering as promised. Its mutual fund family, American Funds, is the biggest fund family in the world and one of only a few families to avoid the tech bubble insanity of ten years ago. Yet the group is now the victim of its biggest outflow of assets ever, $33 billion in redemptions in 2009 alone. And what egregious sin caused this stampede? The firm had a bad fourteen months. Out of seventy-nine years. Seriously.
From October 2007 through the end of 2009, Capital Group's funds were outpaced by the majority of their competitors. Both retail and institutional investors snatched their chips off the table and bolted out the door, looking for downside protection. ETF's, here I come!
Know when to eat your own dog food. This is the era of luring more assets than the other guy, and index funds and ETF's are lapping the field. Yet, in the April 2010 issue of Bloomberg Markets, The Capital Group executives made it quite clear that they will not be offering index funds any time soon. Martin Romo is head of research at Capital Group. Said Mr. Romo, "Market share is not our objective. The great majority of our history, we've been selling something that people don't want to buy: advice. And it's not our obligation to change the advice to make you feel better." Obviously, the folks at Capital Group don't think index funds are better than managed funds. That observation is blunt. And it highlights a dilemma for every Financial Advisor in the world. Capital Group can afford to resist temptation. It manages $1.18 trillion. You don't. Exactly when and why do we abandon our own advice for something new and different?
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