Claims about active fund managing. Credible?

[PsychMike]

American Funds claims that 17 of their 18 managed funds beats the relevant index over the long term.

See https://www.americanfunds.com/individual/insights/investment-insights/lifetime-of-index-beating-results.html

It's notable the comparison index is often comprised of very particular kind of company (small caps, international, emerging markets), and/or changed over time so a different index was used as a baseline over different time periods. Is this cherry picking or justified precision, comparing apples to apples?

Curious to hear if anyone thinks this claim holds any water.

[DMFA]

It's only appropriate to compare a fund to the index it's designed to track. You don't expect internationals and bonds, or even US small caps, to follow the S&P 500. To extend it into Lipper or Morningstar ratings, it's possible to see a 1-rated or 1-star fund with a better return than a 5-star fund in a different category, especially with domestic equities (small-cap value, anyone?) out-performing int'l and bonds over the past 5-10 years.

So what they're saying is that, of all the funds in that class (allocation 30-50%, intermediate-term bond, US large blend, emerging markets, etc), theirs are in the top half of them.

It is, however, useful to compare those indices to the S&P, since US large-caps tend to comprise a majority of our portfolios (and the US economy as a whole). Imo that serves to underscore the importance of diversification across asset classes and US/int'l...

[The White Coat Investor]

American Funds is clearly the most successful family of actively managed broker/loaded funds. This is mostly due to sticking with a reasonable process, some built in factor tilts, having significant money at stake in the fund from the managers, and keeping the ERs relatively low. Bear in mind those comparisons they publish generally exclude the loads. They also sometimes aren't using an appropriate index to compare to. For example, if the fund has a significant small/value tilt and compares to the S&P 500, that isn't really fair. I'm not sure how bad survivorship bias is for American Funds, but that's also an issue with these sorts of comparisons most of the time.

[Zaphod]

The White Coat Investor wrote:

American Funds is clearly the most successful family of actively managed broker/loaded funds. This is mostly due to sticking with a reasonable process, some built in factor tilts, having significant money at stake in the fund from the managers, and keeping the ERs relatively low. Bear in mind those comparisons they publish generally exclude the loads. They also sometimes aren’t using an appropriate index to compare to. For example, if the fund has a significant small/value tilt and compares to the S&P 500, that isn’t really fair. I’m not sure how bad survivorship bias is for American Funds, but that’s also an issue with these sorts of comparisons most of the time.

Click to expand...

I noticed in their disclaimer they switched comparison funds several times, and clearly they are not adding in loads/expenses as those are fairly outrageous.

[PhysicianOnFIRE]

The load on their funds is as high as 5.75%. Compare $100,000 starting in a comparable index fund to $94,250 in one of their actively managed funds, and I think I know which one will win. Of course, they don't do that in their calculations.