American Funds Bold Claim

I'll try to keep this post as short as possible but it seems doubtful. Earlier this year investors were regaled with ads from American Funds claiming: "A Group of Select Equity Funds Has, on Average, Consistently Beaten the Index"

Key words here are "group" and "consistently". I guess this implies that individually and for some periods they don't beat the index. After all kinds of vague charts and unspecified data, the last page of their pdf gets specific.

Seven American Funds are represented as a select group that can beat the index (VFINX).

	Symbol	Inception
Investment Company of America A	AIVSX	1/2/1934
American Mutual Fund A	AMRMX	2/21/1950
Washington Mutual Investors Fund A	AWSHX	7/31/1952
AMCAP Fund A	AMCPX	5/1/1967
The Growth Fund of America A	AGTHX	11/30/1973
Fundamental Investors A	ANCFX	8/1/1978
The New Economy Fund A	ANEFX	12/1/1983

Vanguard S&P 500 Investor Fund

VFINX

8/31/1976

Now lets acknowledge that these are great American mutual funds. The oldest fund here, the Investment Company of America goes back to 1934! Not sure what funds, if any, merged into AIVSX (or the others); but that would have a direct bearing on survivor bias and invest-ability.

I always wondered if any of the old funds have shareholder records going back to 30 years or more. I wonder what those old accounts actually look like today.

To test American's claim I took Yahoo's dataset, and compared the above funds. Caveat: I am comparing NAVs to NAVs, fees NOT included.  Is this fair? Well, both American and Vanguard have different fund classes with differing fees. American Fund A shares have some of the highest loads in the business, but then again, they are legacy funds. So to avoid the load penalty, I am using NAV for comparisons.

And these are the results:

VAMI RETURNS

VAMI Table:

AWSHX   $20,806.88

AGTHX   $22,019.03

ANCFX   $21,394.35

AIVSX    $14,844.63

AMRMX  $13,950.99

AMCPX   $12,828.53

ANEFX   $13,841.07

VFINX   $22,008.00

Only three funds, AWSHX, AGHX and ANCFX compare favorably to VFINX over the long term.  For shorter periods, nearly ALL the listed American Funds do well.

ROLLING RETURNS

Q32017
	VFINX	AWSHX	AGTHX	ANCFX	AIVSX	AMRMX	AMCPX	ANEFX
YTD	13.21%	12.14%	16.54%	14.56%	12.02%	11.34%	14.10%	24.17%
1-Year	16.93%	17.63%	18.11%	18.48%	15.05%	14.41%	15.83%	23.33%
3-Year	10.13%	9.39%	10.94%	10.88%	8.87%	9.09%	9.06%	10.79%
5-Year	13.15%	12.71%	14.10%	13.61%	12.89%	11.81%	13.64%	14.80%
7-Year	13.28%	12.85%	13.10%	12.76%	12.10%	11.71%	13.18%	13.50%
10-Year	7.06%	6.62%	7.09%	7.01%	6.35%	6.84%	7.70%	7.92%
15-Year	9.45%	9.06%	10.27%	10.67%	8.98%	8.97%	9.67%	11.43%
20-Year	6.67%	7.30%	9.05%	8.22%	7.42%	7.35%	8.46%	8.11%
30-Year	8.97%	8.95%	9.06%	9.23%	8.09%	7.80%	7.49%	7.81%

The above are 8 rolling period returns for VFINX and the 7 American Funds in this test. American Funds beat VFINX in 33 of the 63 periods shown.  American Funds beat the index 52% of the time.  Three funds, AGTHX, ANCFX and ANEFX beat 89% of the time periods tested.

CALENDAR YEAR RETURNS

My data spans 31 complete calendar years, 1986 to 2016, and 3Q2017 year-to-date. American Funds overall beat VFINX 40% of the calendar years.  The individual fund beats vary from a spectacular 53% for ANCFX to 44%-34% for the others.

RISK REWARD

3, 5 and 10 year standard deviations of annualized returns have the following results:

3-Year Standard Deviation: 2 of 7 American Funds beat VFINX
5-Year Standard Deviation: 1 of 7 American Fund beats VFINX
10-Year Standard Deviation: 3 of 7 American Funds beat VFINX

CONCLUSION

American Funds NAV generally, over shorter time frames, meet and one beats the returns of VFINX with slightly higher risk. American Funds bold claim is fair.

Disclaimer: This blog is not investment advice, is for information purposes only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors.