On the eve of the financial crisis, Capital Group was king of the mutual fund business—even though most investors had never heard of it. The Los Angeles-based company’s American Funds unit ran seven of the nation’s 10 biggest funds, including the largest of all, the $193 billion Growth Fund of America. Eagerly sold by brokerages such as Merrill Lynch (BAC) and Edward Jones, the funds had no need for mass marketing to attract investors and even less for media attention. Capital Group has issued only three press releases in its 82-year history and politely declines most requests for comment. The idea was that the blandly named funds’ outstanding returns spoke for themselves.
Not anymore. After skating through the dot-com stocks fiasco with little damage, American Funds has had a brutal stretch. Its five largest funds as of Dec. 31, 2007, have all underperformed the Standard & Poor’s 500-stock index through Sept. 30, and investors have pulled out $246 billion over that time.
After watching a quarter-trillion dollars walk out the door, the fund company went on a charm offensive in September. It reached out to the financial press to publicize a study hyping its long-term performance figures and to make the case for its brand of active stockpicking. “After decades of really great success, they hit a wall and suffered subpar performance in the 2008-2009 period,” says Burton Greenwald, a mutual fund consultant.
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