American Funds vs. the Vanguard Group


Triston Martin

Jan 23, 2024

American Funds and The Vanguard Group are two of the biggest mutual fund managers around the globe. Both companies are known for their research capabilities and customer-centric approach, ensuring their customers receive the most lucrative returns. While both companies have a similar objective, that's the point where their similarities end.

American Funds have both back-end and front-end loads, and their fees are higher when compared to Vanguard's, which provides no-load funds. Vanguard's funds are managed passively, while American Funds has managers who actively manage their funds. This article examines some of the major distinctions between these two giants of mutual funds. The return comparisons are determined by the fund's Net Asset Value (NAV) on December 31st, 2021 unless stated otherwise.

American Funds

Capital Group, which is a privately held company that was founded in 1931, is the parent company of American Funds, which is a branch of Capital Group. Capital Group is one of the biggest asset management organizations in the United States, and it has over $2.7 trillion in assets under management. The company's headquarters are located in Los Angeles. The following are some of the many types of assets that are covered by the several funds that are available from American Funds:

  • Equity funds
  • Equity income funds
  • Funds for asset allocation (these are among the most highly-rated offerings of the firm)
  • Fixed-income funds are the classes that have fixed income

The funds are managed by portfolio managers who pay close attention to value and maintain the turnover rate to a minimum. American Funds does not advertise. It sells its funds by paying traditional financial advisors and brokers with commissions. The funds are charged a mix of back-end loads, front-end charges, and higher cost ratios to pay these commissions.

The Vanguard Group

The Vanguard Group is owned by its clients equally, and one of its divisions is called Vanguard Funds. 1975 marked the beginning of operations for the firm. Valley Forge, Pennsylvania serves as the location of Vanguard's main office. With approximately $8 trillion in assets under management as of September 30th, 2021, it is one of the biggest asset management firms in the world. Both American Funds and Vanguard provide funds that cover the same broad range of asset classes. Every single one of Vanguard's mutual funds does not demand an expense ratio 12b-1 fee and all of them are completely free of charge. Although the firm does sell its products, it does not pay fees to brokers or financial consultants who advise the funds on whether investments should be made.

The passive management of index funds is an approach to investing that was developed and popularized by Vanguard's late founder Jack Bogle. Vanguard is best recognized for being the market leader in this kind of fund. On the other hand, Vanguard also provides access to a sizable number of actively managed funds. The mutual fund shareholders of the firm are able to own the company thanks to the innovative structure of the company. The Vanguard Group distributes all possible gains to the funds in the form of decreased fees for asset management. As a result, the Vanguard Group has the lowest cost ratios in the business of mutual funds.

Fees Are Lower When You Use Index Investing

The two sides the active and passive. The passive investment debate could be one in agreement with the fact that investing in index funds is more affordable than actively managed funds. Fund managers are intelligent people with fancy degrees like an MBA or Ph.D. Like doctors looking to be well compensated for their many years of medical education and experience, fund managers would like to be paid for their time studying finance at Business College or graduate school.

Furthermore, fund managers require research personnel (who usually also possess MBAs) to analyze possible investments. Additionally, they frequently meet with company executives to better understand the future of investment. This all costs money actively managed funds have to charge their investors for the service. Operating an index fund, in contrast, is extremely affordable since there's no money to be spent on costly funds or fund management companies. The cost of running an index fund is mostly from transaction costs for purchasing and selling shares of the index used to create it.


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