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To the Editor:
If loads and fees were deducted from the
annualized performance listed for the American
Funds in the table accompanying the July 12,
2004 mutual fund article “Big Wheels,” the only
one that would have outperformed the S&P 500
benchmark over the previous ten-year period is
The Growth Fund of America. The Only One.
Even the second-place American Funds Washington
Mutual Investors, with its 13.16% annualized
ten-year performance, failed to outperform the
S&P. Curiously enough, a case could be made for
the American Funds Balanced Fund over that
period. Of course it was helped by a bull market
in bonds over the last few years, but I find it
very impressive that a fund with 30% in bonds
was able to come as close to matching the S&P
over that time. Indeed, that Holy Grail of low
volatility combined with excellent returns was
one of the advantages of this group of funds
writer Lawrence Strauss referred to in the
article.
Whether in the end it was prudent for the
average investor to pay a 5.75% front-end load,
thereby enriching American Funds, along with his
or her broker or financial adviser, for that
sort of asset allocation, or whether it is
really worth it for an investor to pay similar
fees to American Funds’ Income Fund of America
to invest in stocks like SBC, General Motors,
and J.P. Morgan Chase, is best left for another
discussion.
Robert Doggett
Polaris Asset Management
Seattle, Washington
Lawrence
Strauss replies: Returns shown were net of
fees, but the industry convention is not to
deduct sales loads [from performance
calculations]. There’s certainly room for debate
on that issue.
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