Best Fund Families How the best active managers performed

Transcription

1 MARCH 11, 2019 Best Fund Families How the best active managers performed Harry Campbell (over please) The Publisher s Sale Of This Reprint Does Not Constitute Or Imply Any Endorsement Or Sponsorship Of Any Product, Service, Company Or Organization. Custom Reprints DO NOT EDIT OR ALTER REPRINT/REPRODUCTIONS NOT PERMITTED

2 Cover Story Barron s Fund Family Ranking The Best Active Shops By Sarah Max Let s rewind the tape back to early 2018, when fund managers were betting on a rare moment: The world s major economies were all expanding together. That, coupled with signs of strength across a range of asset classes, created what some described as the best investing environment of their entire careers. Until September, that is, when the new highs quickly fell, and 2018 ended as the worst year for stocks in a decade and active managers found their skills tested, not in making the most for clients, but in losing the least. 57 fund companies met the product offering requirements to be on this list, out of the 869 in Lipper s database Minimizing losses was no small accomplishment: In a year when the S&P 500 index finished down 4.4% and the MSCI World index dropped 8.7%, lowsingle-digit declines were something to celebrate. Of the 3,794 actively managed mutual funds tallied for this ranking, most 3,128 lost money. Of the 666 funds that managed positive returns last year, just seven posted double-digit returns. The top firms in this year s Barron s annual Best Fund Families rankings did what they were supposed to do beat their benchmarks and outperform their respective Lipper peers. Taking the top spot is American Funds, up from No. 36 in our previous ranking. Among the funds that moved the needle for the $1.6 trillion American Funds complex last year was the $134 billion American Balanced Fund (ticker: ABALX), a mixed-asset juggernaut. It declined nearly 2.5% but nevertheless outpaced 96% of its Lipper peers. The firm s 10 largest funds all closed out 2018 with losses. Taking the No. 2 slot, New York Life Investment Management s retail arm, MainStay Funds, benefited from strong results from its boutique investment division, MacKay Shields, and subadvisor Winslow Capital Management. Eaton Vance (ticker: EV) moved into the No. 3 position, thanks to consistently strong performance across most of its funds; two-thirds of which ranked in the top half of their peer groups. Thrivent Mutual Funds claimed No. 4, aided by hearty results at two of its largest funds. Rounding out the top five was Pimco. The Newport Beach, Calif. based firm is best known for its bond funds, but stock and mixedasset portfolios played no small role in boosting its score. For more than two decades, Barron s has ranked fund families annually to gauge how firms stack up, based on relative one-year performance across a range of categories. To qualify for this ranking, firms must offer at least three mutual funds or actively The Best Fund Families of 2018 This is the second year we ve ranked the fund families purely on their actively managed funds all of them. Total FUND RANKING Assets Weighted U.S. World Mixed Taxable Tax-Exempt Rank Family (mil)* Equity Equity Equity Bond Bond 1. American Funds $1,589, MainStay Funds 45, Eaton Vance 82, Thrivent Mutual Funds 20, Pimco 355, First Trust Advisors 16, Sit Investment Associates 1, Vanguard Group 1,333, Victory Capital Mgmt 27, Brinker Capital 9, Franklin Templeton Investments 295, MFS Investment Mgmt 232, Wells Fargo Funds 72, Guggenheim Investments 28, Ivy Investment Mgmt 53, BlackRock 226, T. Rowe Price 673, Manning & Napier Advisors 5, BMO Asset Mgmt 7, Hartford Funds 82, BNY Mellon/Dreyfus 53, Virtus Investment Partners 37, Russell Investments 35, J.P. Morgan Asset Mgmt 324, Transamerica Asset Mgmt 39, Legg Mason 107, Fidelity Mgmt & Research 1,222, SEI Group 87, Dimensional Fund Advisors 385,

3 The Best Fund Families of 2018 This is the second year we ve ranked the fund families purely on their actively managed funds all of them. Total FUND RANKING Assets Weighted U.S. World Mixed Taxable Tax-Exempt Rank Family (mil)* Equity Equity Equity Bond Bond 30. American Century Inv Mgmt $113, State Street Bank & Trust 17, Aberdeen Standard 9, Neuberger Berman 31, Goldman Sachs Asset Mgmt 49, Affiliated Managers Group 90, Prudential Investments 97, Northern Trust Investments 24, Delaware Mgmt 46, Principal Global Investors 138, Saratoga Capital Mgmt 1, Putnam Investment Mgmt 66, Lord Abbett 133, AllianceBernstein 71, Columbia Threadneedle Investments 124, Charles Schwab Investment Mgmt 17, Nuveen 147, USAA Asset Mgmt 55, DWS 29, UBS Asset Mgmt 8, John Hancock 164, PNC Funds 2, Federated Investors 59, OppenheimerFunds 170, Amundi Pioneer Asset Mgmt 40, Foresters Investment Mgmt 9, Invesco 134, Natixis Investment Managers 135, *Total assets reflect funds included in the survey. managed exchange-traded funds in Lipper s general U.S. stock category, one in world equity, and one in mixed asset like a balanced or other fund that owns stocks and bonds. Firms also must offer at least two taxable bond funds and one national tax-exempt bond fund. All funds must have a minimum track record of one year. As of last year, the ranking excludes index funds, but does include actively managed ETFs and smart-beta ETFs which are run passively but built on active investment strategies so the list reflects the firms active management ability. All told, just 57 asset managers out of the 869 in Lipper s database had the menu of equity and fixed-income funds to meet the criteria for While many notable firms including Dodge & Cox and Janus Henderson generally don t qualify for the ranking, the list varies from year to year as firms merge, get acquired, or add new products. In 2018, State Farm Investment Management merged its funds with BlackRock s (BLK), and Nationwide Fund Advisors liquidated its national tax-exempt bond, thus taking them off the list. TIAA-CREF rebranded its funds in 2017 under its Nuveen division, which ranks 46th. This year brought one newcomer: Brinker Capital, a registered investment advisor based in the Philadelphia area. Brinker launched a series of multimanager mutual funds in 2017, qualifying the 32-year-old firm for the ranking and with an impressive 10th-place debut. Because Best Fund Families results are asset-weighted, firms largest funds tend to factor heavily into their rankings for better or worse. That worked in favor of multi-affiliate manager Natixis Investment Managers in 2016 and 2017, when the $35.4 billion Oakmark International fund (OAKIX) propelled Natixis to the No. 1 slot. That dynamic flipped last year, when the fund fell 23%. Lead 3 manager David Herro is a skilled contrarian investor, and the fund has rebounded 11.8% so far in But a tough 2018 and substantial losses for other Oakmark funds dragged Natixis to the very bottom of the 2018 ranking. Loomis Sayles is also part of Natixis, and its flagship $11 billion Loomis Sayles Bond fund (LSBDX) lost nearly 3%, and its institutional shares ranked in the bottom 39%. Not everyone at top-ranked American Funds saw eye-to-eye on the best course of action in If you sat in on our investment calls, you would have heard people who were very cautious and nervous and positioned that way, and you would have found other people who were pretty aggressive, says Tim Armour, chairman and CEO of Capital Group, the firm behind American Funds. That diversity of opinion, he says, is precisely why this system of management works. The firm s 36 distinct strategies are run by multiple managers, but they each have autonomy over the assets they oversee. This avoids the pitfalls of a star manager system, and generally leads to healthy returns. Low costs help; the average management fee of 0.35% is less than that of many passive funds. On that front, American Funds does not offer any passively managed funds or ETFs. A bigger priority has been building American s fixed-income side of the business which makes up 20% of the firm s assets, with an emphasis on bond funds that act like bond funds, says Armour, who also co-manages the $21 billion American Funds New Economy fund (ANEFX). Meanwhile, two of the funds that weighed heavily in American s high ranking were the $134 billion Balanced fund, which combines equity and fixed-income and bested 96% of its peers, and the $40 billion American Funds Bond Fund of America (ABNDX), which outperformed 82% of its Lipper category. On the other side of the country, New York Life Investment Management CEO Yie-Hsin Hung also emphasizes the value of independent thinking, but with a slightly different approach. The firm s $54 billion retail asset management arm, MainStay Funds, includes eight boutique managers that collectively put the fund family in the No. 2 spot for We really like this idea of independently minded, entrepreneurial boutiques that have their own culture and ability to move quickly to meet the needs of clients, Hung says.

4 One such entity is MacKay Shields, which MainStay brought into the fold in The New York based team focuses on income, municipal bonds in particular. Retail shares of the firm s $5.6 billion MainStay MacKay High Yield Municipal Bond fund (MMHAX) returned 4.3% last year, better than 94% of its Lipper peers. The $11.6 billion MainStay Large Cap Growth fund (MLAAX) was another standout, returning 3.7% in 2018, better than 92% of its Lipper peers. Its longtime subadvisor, Minneapolis-based Winslow Capital Management, focuses exclusively on growth stocks, which it puts into three segments: consistent, cyclical, and dynamic. Making that distinction was important last year. It helped the managers spot trouble with Apple (AAPL) which had been considered a consistent grower and exit the position in early Apple fell almost 7% in Talented asset managers shine in tough markets. It s also a period where innovative companies can improve their business positions, says Tom Faust, CEO of No. 3-ranked Eaton Vance. The Boston firm traces its heritage to the first modern mutual fund, but like many larger fund complexes, it has added new areas of expertise to its menu of offerings. A notable recent addition was sustainable investing specialist Calvert Research and Management, which Eaton Vance acquired in late The flagship $2.4 billion Calvert Equity fund (CSIEX), subadvised by Atlantic Capital Management, returned more than 5% last year. That result gives credence to the idea that strong corporate governance, environmental stewardship, and social policies tend to go hand in hand with financial strength and resilience. It was also validation that the acquisition and subsequent investments in Calvert s environmental, social, and governance, or ESG, research platform was a wise move for Eaton Vance. There were other investments that played out well in 2018, Faust notes, including building out a range of shortduration income strategies and bank loan funds, including the category-leading $8.6 billion Eaton Vance Floating-Rate fund (EVBLX). For fourth-ranked Thrivent Mutual Funds, the goal of helping people be wise with money and live generously also proved good for business. While the industry saw huge outflows at year-end, the Minneapolis-based firm brought in new money in what Chief Investment Best Fund Families Over Five Years Rank Family Weighted 1. Vanguard Group T. Rowe Price Thrivent Mutual Funds BMO Asset Mgmt Hartford Funds American Funds Eaton Vance Fidelity Mgmt & Research MFS Investment Mgmt J.P. Morgan Asset Mgmt Virtus Investment Partners Guggenheim Investments Transamerica Asset Mgmt BlackRock Victory Capital Mgmt Legg Mason Columbia Threadneedle Inv Pimco Principal Global Investors Nuveen MainStay Funds Affiliated Managers Group Delaware Mgmt Amundi Pioneer Asset Mgmt AllianceBernstein Dimensional Fund Advisors Prudential Investments SEI Group Putnam Investment Mgmt Northern Trust Investments BNY Mellon/Dreyfus DWS American Century Inv Mgmt John Hancock Natixis Investment Managers Lord Abbett Wells Fargo Funds Aberdeen Standard Federated Investors Goldman Sachs Asset Mgmt OppenheimerFunds USAA Asset Mgmt Invesco UBS Asset Mgmt Sit Investment Associates Franklin Templeton Investments Charles Schwab Inv Mgmt PNC Funds Saratoga Capital Mgmt Ivy Investment Mgmt Neuberger Berman State Street Bank & Trust Russell Investments Manning & Napier Advisors Foresters Investment Mgmt Best Fund Families Over Ten Years Rank Family Weighted 1. Pimco Affiliated Managers Group Vanguard Group T. Rowe Price Delaware Mgmt Putnam Investment Mgmt John Hancock MFS Investment Mgmt Virtus Partners Legg Mason Hartford Funds Principal Global Investors Dimensional Fund Advisors Aberdeen Standard J.P. Morgan Asset Mgmt Thrivent Mutual Funds American Funds Columbia Threadneedle Inv Fidelity Mgmt & Research Goldman Sachs Asset Mgmt OppenheimerFunds Wells Fargo Funds Nuveen Prudential Investments Lord Abbett AllianceBernstein Franklin Templeton Investments USAA Asset Mgmt BlackRock DWS MainStay Funds Eaton Vance Victory Capital Mgmt SEI Group Invesco Ivy Investment Mgmt BNY Mellon/Dreyfus Charles Schwab Inv Mgmt Federated Investors Russell Investments Amundi Pioneer Asset Mgmt PNC Funds State Street Bank & Trust American Century Inv Mgmt Guggenheim Investments UBS Asset Mgmt Foresters Investment Mgmt Northern Trust Investments Manning & Napier Advisors 19.32

5 U.S. Equity World Equity Mixed Asset Taxable Bond Tax-Exempt Bond 1. First Trust Advisors MainStay Funds Northern Trust Investments Thrivent Mutual Funds Virtus Partners BMO Asset Mgmt MFS Investment Mgmt PNC Funds Thrivent Mutual Funds Virtus Partners Sit Investment Associates Manning & Napier Advisors American Funds Victory Capital Mgmt Pimco Sit Investment Associates Guggenheim Investments American Funds Dimensional Fund Advisors Victory Capital Mgmt Goldman Sachs Asset Mgmt OppenheimerFunds MainStay Funds Russell Investments Vanguard Group John Hancock Prudential Investments PNC Funds Invesco Natixis Investment Managers Charles Schwab Inv Mgmt Nuveen Saratoga Capital Mgmt Amundi Pioneer Asset Mgmt Natixis Investment Managers Affiliated Managers Group Amundi Pioneer Asset Mgmt Foresters Invest Mgmt Federated Investors Lord Abbett UBS Asset Mgmt Delaware Mgmt Northern Trust Investments OppenheimerFunds Aberdeen Standard Natixis Investment Managers Foresters Investment Mgmt John Hancock DWS Saratoga Capital Mgmt 0.04 Officer David Royal calls a great year. A move to broaden its distribution channels helped bolster sales for the $20.7 billion fund family. Although it s a division of Christian membership organization Thrivent Financial, its funds are widely available. Solid performance didn t hurt, either. The firm s two largest funds, both mixed-asset offerings the $2.8 billion Thrivent Moderately Aggressive Allocation (TMAAX) and $2.4 billion Thrivent Moderate Allocation (THMAX) ended the year down, but dampened losses with early calls to underweight international stocks and favor value over growth. Despite a 10% decline for the year, the $2.1 billion Thrivent Mid Cap Stock (AASCX) ended 2018 near the top quartile of its peer group and it continues to lead its category across major trailing time periods. We have a strong and very deep commitment to fundamental research, says Royal of the small firm s nearly 40 equity and fixed-income analysts. Pimco sits on the other end of the size spectrum. The $1.7 trillion global behemoth ranked fifth. The firm covers all major asset classes if it didn t, it would not be on this list but fixed income is still its forte, representing 88% of its assets. A common theme for 2018 across many Pimco funds was the proliferation and deterioration in quality of corporate credit. There has been so much issuance over the past several years, and a lot of that in the hands of yield-seeking investors, says group Chief Investment Officer Dan Ivascyn. When market sentiment changes, that s the one sector that s most likely to overshoot fundamentals. Many funds, including the $115 billion Pimco Income (PONAX), up 0.4% last year, and the $64 billion Pimco Total Return (PTTAX) did well by limiting corporate bonds and focusing on mortgagebacked securities. Looking forward the next few years, [mortgage-backed securities] will be a very attractive and defensive sector that provides a steady yield, Ivascyn maintains. That isn t to say that Pimco has turned a blind eye to the ever-expanding corporate bond market. Just the opposite. The tremendous growth in issuance, he says, has prompted the firm to bolster its research in corporate credit, particularly outside the U.S., so it s ready to act when dislocations give rise to deals. You never know exactly when the opportunity comes, says Ivascyn, whose firm, incidentally, is No. 1 in our 10-year ranking. But in this business, anticipation of the next opportunity is almost as important as realizing the current one. n How We Rank the Fund Families All mutual and exchange-traded funds are required to report their returns (to regulators as well as in advertising and marketing material) after fees are deducted, to better reflect what investors would actually experience. But our aim is to measure manager skill, independent of expenses beyond annual management fees. That s why we calculate returns before any 12b-1 fees are deducted. Similarly, fund loads, or sales charges, aren t included in our calculation of returns. Each fund s performance is measured against all of the other funds in its Lipper category, with a percentile ranking of 100 being the highest and one the lowest. This result is then weighted by asset size, relative to the fund family s other assets in its general classification. If a family s biggest funds do well, that boosts its overall ranking; poor performance in its biggest funds hurts a firm s ranking. To be included in the ranking, a firm must have at least three funds in the general equity category, one world equity, one mixed equity (such as a balanced or target-date fund), two taxable bond funds, and one national tax-exempt bond fund. We have historically excluded single-sector and country equity funds, but those are now factored into the rankings as general equity. We exclude all passive index funds, including pure index, enhanced index, and index-based, but include actively managed ETFs and so-called smart-beta ETFs, which are passively managed but created from active strategies. Finally, the score is multiplied by the weighting of its general classification, as determined by the entire Lipper universe of funds. The category weightings for the one-year results in 2018 were general equity, 34.8%; mixed asset, 21.3%; world equity, 17.1%; taxable bond, 22.4%; and tax-exempt bond, 4.4%. The category weightings for the five-year results were general equity, 35.9%; mixed asset, 19.7%; world equity, 17.3%; taxable bond, 22.5%; and tax-exempt bond, 4.5%. For the 10-year list, they were general equity, 37.1%; mixed asset, 20%; world equity, 16.7%; taxable bond, 21.2%; and tax-exempt bond, 4.9%. The scoring: Say a fund in the general U.S. equity category has $500 million in assets, accounting for half of the firm s assets in that category, and its performance lands it in the 75th percentile for the category. The first calculation would be 75 times 0.5, which comes to That score is then multiplied by 34.8%, general equity s overall weighting in Lipper s universe. So it would be 37.5 times 0.348, which equals Similar calculations are done for each fund in our study. Then the numbers are added for each category and overall. The shop with the highest total score wins. The same process is repeated to determine the five- and 10-year rankings. 5

6 Figures shown are past results for Class F-3 shares and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods make losses more likely. For current information and month-end results, visit americanfunds.com. Investment results Class F-3 Shares Results for periods ended December 31, 2018 Inception date 1 year 5 years 10 years Expense ratio American Balanced Fund (AMBAL) 7/26/ % 6.51% 10.64% 0.29% The Bond Fund of America (BFA) 5/28/ Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The expense ratios are as of each fund s prospectus. Class F-3 shares were first offered on January 27, Class F-3 share results prior to the date of first sale are hypothetical based on Class A share results without a sales charge, adjusted for typical estimated expenses. Please see americanfunds.com for more information on specific expense adjustments and the actual dates of first sale. Class F-3 share results are shown as their expense structure most closely corresponds to the methodology used by Barron s in its analysis. American Funds offers other share classes that have additional expenses; the returns of those share classes would have been lower than those shown. If used after March 31, 2019, this article must be accompanied by a current American Funds quarterly statistical update. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. Investors should carefully consider investment objectives, risk, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by Capital Group, which receives fees for managing, distributing and/or servicing its investments. Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation. Securities offered through American Funds Distributors Inc. Lit. No.MFGEMR P Litho in USA CGD/9074-S Capital Group. All rights reserved. 6 Printed on recycled paper