A group of young and old malibu (longboard) surfers about to go surfing at sunrise.

Content provided by Grant Engelbart, CFA, CAIA, CLS Portfolio Manager

Sunny Southern California: surfers, palm trees, mountains, ocean views – hardly the setting you would expect to find one of the oldest money managers in the U.S. But, tucked away in a tall, downtown Los Angeles office building bearing the name of a different U.S. financial institution resides Capital Group. Sound familiar now? Not likely. Notoriously private, Capital Group is the parent company for the American Funds family of mutual funds. Capital Group’s influence doesn’t end there. The 85-year-old company was nearly the first to launch a mutual fund and has had a huge influence on the mutual fund industry, (for example, it helped create 12(b)-1 fees to encourage long-term investing). Capital has spawned such top-notch entities as Sequoia Capital (a private equity firm backing just about every top-notch technology company), PRIMECAP Odyssey Funds (one of the advisors for Vanguard’s actively managed funds), and MSCI (Capital International (CI), developed the EAFE index).

Recently, several of us at CLS had the privilege to visit this prestigious organization to learn more about its philosophy and culture. Capital Group focuses on achieving excellent results over the long term for three key constituencies: clients, associates, and owners. These three often blend together as many associates and managers invest in their own funds (often enormously) and have ownership stakes in the business. Over the past 15-years, more than 60% of the American Funds rank in the top 25% of their respective categories, with more than a third of the funds in the top 10%. Over longer periods of time, the results are even better.

Our experience further validated what we already knew: We are partnering with one of the most elite fund managers out there.

At CLS, we strive to diversify clients across the wide variety of American Funds available, beyond just those that are well known or have been sold to investors previously. There are many great American Funds available, and we like to take advantage of all of them rather than just the largest. We also want to maintain a similar long-term focus that the analysts and portfolio managers at Capital take, and ensure that our trading and turnover is a complement rather than a deterrent.

CLS’s operational value-add is extensive as well. From supporting systematic withdrawals, required minimum distributions, Risk Budget changes, statements, client reviews, and now transitioning certain low cost basis assets, we are available in a number of ways to help clients. Most importantly, we keep risk consistent across portfolios even if the risk of the American Funds we utilize changes. Our proprietary Risk Budget system has been in place for more than 15 years, and we couple our methodology with a vast array of additional statistics.

We build portfolios of Capital Group’s funds – the American Funds – however, Capital Group should serve as a model for all investment managers to strive for excellence in all areas of their business.

Charles Ellis’s excellent book “Capital: The Story of Long-Term Investment Excellence” had a strong influence on the content and message of this blog post.


CLS is not affiliated with any of the companies listed above. While some CLS portfolios may contain one or more of the specific funds mentioned, CLS is not making any comment as to the suitability of these, or any investment product for use in any portfolio.