As one of the largest fund families in the U.S., American Funds traces its roots back to 1934. That's when Capital Group, a private Los Angeles-based financial services firm, took over the Investment Company of America and began building a different sort of investing product. 

The American Funds family of mutual funds started in those heady days following the Great Depression's onslaught, bringing an early mover status that would grow over decades. Now operating globally with more than 9,000 employees and 40-plus mutual funds, the firm reported assets under management topping $3.6 trillion as of mid-year 2026.

Perhaps just as significant to investors is the way its managers have handled such massive growth in assets. 

Since first helping to bring mutual funds into the U.S. investment mainstream, executives at American Funds have been staunch advocates of active management. They've also allowed assets to build, choosing to give different managers varying slices of a single fund's assets to oversee. As a result, its leaders over the years haven't expressed public concern about their portfolios becoming too bloated.  

Even so, a natural question for an objective investor to ask relates to how much "asset bloat" one fund might be able to handle before its managers run into problems getting in-and-out of positions. The concern is that such a multi-manager approach can be used as a means to keep an active fund open longer, thereby letting assets build and revenues continue to flow into the fund company's coffers.

On the other hand, index fund managers don't try to pick stock winners and losers as market sentiment shifts. They stick to a rules-based investment strategy that tracks a benchmark, putting a premium on a lack of trading and consistency in execution. As a result, issues related to asset bloat generally don't apply to the world of passive management. 

Active managers at American Funds, in particular, have faced concerns about how nimbly can manage funds with lengthy histories and ample asset bases. In early 2020, for example, Morningstar raised such an issue with the $180 billion American Funds Growth Fund of America (AGTHX). 

Besides presenting a range of different fund statistics that are regularly updated for investors, the independent research firm also provides subscribers with in-depth reviews of hundreds of popular funds. (Besides regular refreshes, past reports are archived on the site.) For example, in an early April addition to his review of Growth Fund of America, Morningstar analyst Tom Nations observed that a team of more than a dozen managers are in-charge of different "sleeves" of the portfolio.

Some are active in "traditional" growth stocks, he wrote, while others prefer to invest in "fallen angels." Others, he added, like more cyclical names. "Granted, with each manager running between $5 billion and $15 billion, investing in smaller companies isn't a problem at the sleeve level. But such weightings get diluted as the various sleeves coalesce," the reviewer added. As its category's biggest asset-gatherer, the analyst noted "the fund's girth limits its ability to take big positions in mid- and even some large-cap stocks." 

In general, the American Funds family has also drawn criticism within some industry circles for maintaining funds that are sold as focusing on specific parts of the market. The argument is that with such a wide-ranging contingent of underlying managers, these portfolios court so-called style drift.

Since different types of stocks have been known to carry different risk properties, style consistency is critical to an investor from an asset-allocation standpoint. Letting styles in active management to drift can also blur the lines of measuring how persistent any single fund using multiple active managers has been over the longer-term from an overall performance benchmarking perspective.  

Given such uncertainties, we thought it'd be worthwhile to put under our research microscope the American Funds family of mutual funds. This should help to provide investors with a more objective view of how these active managers over time have stacked up against their respective benchmarks. 

Controlling for Survivorship Bias

It's important for investors to understand the idea of survivorship bias. While there are 48 active mutual funds with five or more years of performance-related data currently offered by American Funds, it doesn't necessarily mean these are the only strategies this company has ever managed. In fact, despite the fact this funds family operates under a business strategy that emphasizes keeping funds open, there are four mutual funds that no longer exist. This can be for a variety of reasons including poor performance or the fact that they were merged with another fund. We will show what their aggregate performance looks like shortly. 

Fees & Expenses

Let's first examine the costs associated with American Funds' surviving 41 strategies. It should go without saying that if investors are paying a premium for investment "expertise," then they should be receiving above average results consistently over time. The alternative would be to simply accept a market's return, less a significantly lower fee, via an index fund.

The costs we examine include expense ratios, front end (A), deferred (B) and level (C) loads, as well as 12b-1 fees. These are considered the "hard" costs that investors incur. Prospectuses, however, do not reflect the trading costs associated with mutual funds.

Commissions and market impact costs are real expenses associated with implementing a particular investment strategy and can vary depending on the frequency and size of the trades executed by portfolio managers.

We can estimate the costs associated with an investment strategy by looking at its annual turnover ratio. For example, a turnover ratio of 100% means that the portfolio manager turns over the entire portfolio in one year. This is considered an active approach and investors holding these funds in taxable accounts will likely incur a higher exposure to tax liabilities, such as short- and long-term capital gains distributions, than those incurred by passively managed funds.

The table below details the hard costs as well as the turnover ratio for all 41 surviving active funds offered by American Funds that have at least five years of complete performance history. You can search this page for a symbol or name by using Control F in Windows or Command F on a Mac. Then click the link to see the Alpha Chart. Also, remember that this is what is considered an in-sample test; the next level of analysis is to do an out-of-sample test (for more information see here).

^{Please read the prospectus carefully to review the investment objectives, risks, charges and expenses of the mutual funds before investing. American Funds prospectuses are available at https://www.capitalgroup.com/individual/investments/prospectuses-and-reports.htm}

On average, an investor who utilized a surviving active equity mutual fund strategy from American Funds experienced a 0.65% expense ratio. Similarly, an investor who utilized a surviving active bond strategy from the company experienced a 0.59% expense ratio.

These expenses can have a substantial impact on an investor's overall accumulated wealth if they are not backed by superior performance. The average turnover ratios for surviving active equity and bond strategies from American Funds were 39% and 75%, respectively. This implies an average holding period of 16 to 31 months.

In contrast, many index funds have very long holding periods, often measured in decades, thus deafening themselves to the random noise that accompanies short-term market movements, and focusing instead on the long-term. Again, turnover is a cost that is not itemized to the investor but is definitely embedded in the overall performance.

Performance Analysis

The next question we address is whether investors can expect superior performance in exchange for the higher costs associated with American Funds' implementation of active management. We compare each of this mutual fund family's 51 strategies, keeping in mind that this is a relatively small lineup for a company with such a large base of assets. In this part of our review, we consider both current funds and those no longer in existence, comparing performance against each fund's Morningstar assigned benchmark to see just how well it has delivered on any perceived value proposition. 

We have included alpha charts for each fund's current strategies at the bottom of this article. Here is what we found:

• 56.86% (29 of 51 funds) have underperformed their respective benchmarks or did not survive the period since inception.

• 43.14% (22 of 51 funds) have outperformed their respective benchmarks since inception, having delivered a POSITIVE alpha.

From such a broad overview, it's probably fair to say that a significant number of American Funds managers studied have lagged their independently assigned Morningstar benchmarks. That might be reason enough to seed doubt for investors considering putting new money into such mutual funds. Here's the real kicker, however:

• 1.96% (1 of 51 funds) have outperformed their respective benchmarks consistently enough since inception to provide 97.5% confidence that such outperformance will persist as opposed to being based on random outcomes.

As a result, this study found evidence of a lack of persistence in performance by American Funds' active managers over the years, leading us to refrain from recommending such funds to our clients. The inclusion of the statistical significance of alpha is key to this exercise, as it indicates which outcomes are due to a skill that is likely to repeat and those that are more likely due to a random-chance outcome.

Regression Analysis

How we define or choose a benchmark is extremely important. If we relied solely on commercial indexes assigned by Morningstar, then we may form a false conclusion that American Funds has the "secret sauce" as active managers.

Since Morningstar is limited in terms of trying to fit the best commercial benchmark with each fund in existence, there is of course going to be some error in terms of matching up proper characteristics such as average market capitalization or average price-to-earnings ratio.

A better way of controlling these possible discrepancies is to run multiple regressions where we account for the known dimensions (betas) of expected return in the U.S. (i.e., market, size, relative price, etc.).

For example, if we were to look at all of the U.S.-based strategies from American Funds that've been around for the past 10 years, we could run multiple regressions to see what each fund's alpha looks like once we control for the multiple betas that are being systematically priced into the overall market.

The chart below displays the average alpha and standard deviation of that alpha for the past 10 years through 2025. Screening criteria includes funds with holdings of 90% or greater in U.S. equities and uses the oldest available share classes.

As shown above, none of the equity funds reviewed produced a statistically significant level of alpha, based on a t-stat of 2.0 or greater. (For a review of how to calculate a fund's t-stat, see the section of this study that follows the individual American Funds alpha charts.)

Why is this important? It means that if we wanted to simply replicate the factor risk exposures to these American Funds mutual funds with indexes of the factors, we could blend the indexes and seek to fcapture similar returns. 

To get similar risks and returns in a mutual fund would require the additional fees of those passively managed funds. That would alter such an analysis, but not by much because of the relatively low fees of the passively managed funds compared to the actively managed funds.

Given the lower costs associated with index funds, investors may reasonably expect cost savings, although future investment results are uncertain. 

Conclusion

Like many of the other largest financial institutions, a deep analysis into the performance of American Funds has yielded a not so surprising result: We believe activly managed investment strategies may not deliver outcoes that justify their costs.  We believe this is due to market efficiency, costs and increased competition in the financial services sector.

As we always like to remind investors, a more reliable investment strategy for capturing the returns of global markets is to buy, hold and rebalance a globally diversified portfolio of index funds.

Below are the individual alpha charts for the existing American Funds actively managed mutual funds that have five years or more of a track record.

 

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Here is a calculator to determine the t-stat. Don't trust an alpha or average return without one.

The Figure below shows the formula to calculate the number of years needed for a t-stat of 2. We first determine the excess return over a benchmark (the alpha) then determine the regularity of the excess returns by calculating the standard deviation of those returns. Based on these two numbers, we can then calculate how many years we need (sample size) to support the manager's claim of skill.

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This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal. Performance may contain both live and back-tested data. Data is provided for illustrative purposes only, it does not represent actual performance of any client portfolio or account and it should not be interpreted as an indication of such performance. IFA Index Portfolios are recommended based on time horizon and risk tolerance. Take the IFA Risk Capacity Survey (www.ifa.com/survey) to determine which portfolio captures the right mix of stock and bond funds best suited to you.  For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.