Southern California’s largest financial institution might also be the quietest – and that’s the way the executives like it.
Capital Group Cos., the mutual fund giant headquartered in downtown Los Angeles, has developed a reputation over the better part of the previous century for earning consistently strong returns in both good and bad markets. In the process, the firm’s assets have ballooned to more than $1 trillion, placing Capital Group among the largest financial companies in the world.
But while the firm is known more for its sizable stock portfolio, its $175 billion bond operation is the second largest in Los Angeles and ranks among the country’s biggest.
It has become a behemoth – remarkably – with virtually no self-promotion.
The firm does not advertise to individual investors. It does not send out press releases. It rarely makes any executives or portfolio managers available to the media.
Founded in the early days of the Great Depression by stock analyst Jonathan Bell Lovelace, Capital Group has made research a central component of its strategy. The firm, which includes the Capital Research and Management advisory unit, favors long-term investments, sometimes holding securities for 10 years or longer. It is headed by James F. Rothenberg.
To entice investors geared toward the long term, the firm sells its funds only through investment advisers. While individuals can invest through 401(k) plans, a financial adviser must run those programs. About one-fifth of the firm’s assets under management are from 401(k) clients. Other clients include large institutional investors. Capital Group offers 30 mutual funds – far fewer than many of its competitors – 13 of which are focused on the bond market.
The firm has fallen into a rough patch of late. Its equity funds, smarting from recent poor performance, have suffered multibillion-dollar outflows over the past year. During the same stretch, the company reduced its staff by 1,300 people, or roughly 14 percent.
But while many of its competitors have tried to entice investors with low-fee funds, such as index funds that don’t require active management, Capital Group has stuck to its guns and not rushed to introduce new offerings.
The firm’s bond division, in fact, has helped insulate it from some of the tumult in the industry. Much of the money fleeing equity has moved toward fixed income. The firm now manages $175 billion in fixed-income assets – up 30 percent from the end of 2009, which the firm attributes to a combination of strong returns and inflow of new investment capital.
Across its funds, Capital Group takes a unique approach to management.
Unlike most mutual fund firms, Capital Group does not have individual fund managers; instead, it has between six and 10 managers, or “counselors,” and about two dozen analysts overseeing each fund. In the firm’s popular Bond Fund of America, a fixed-income fund with nearly $40 billion under management, there are six managers overseeing high-yield bonds, treasuries and other types of fixed-income products.
As a result of the unusual structure, Capital Group does not produce star fund managers. “It’s not a top-down system,” Freadhoff said. “Each person manages their own sleeve or own piece of the portfolio as if it were the entire portfolio.”
With no big names and no active self-promotion, Capital Group is often overshadowed in the bond world by Pimco. It doesn’t help that less than one-fifth of the firm’s assets under management are in bonds, but if the firm’s fixed-income segment was broken out into its own firm, it would rank in the top 10 largest U.S. bond firms by assets.
Capital Group Cos.
Los Angeles
Founded: 1931
Fixed Income Assets: $135 billion
