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Birth of an investment management system

Speaker:
Jim Lovelace
Title:
Senior vice president, Capital Research and Management Company
Investment experience:
30 years

JIM LOVELACE: The Multiple Portfolio Counselor System® is our unique approach to investment management. We were essentially a committee-driven process into the 1950s, an investment committee managing four mutual funds. My grandfather was the chairman of the investment committee.

In 1953, my grandfather suffered a heart attack.

He took a year’s leave of absence, and that was a bit of a crisis for the company, figuring out how to handle that. Coming out of that, we started to experiment with assigning funds to specific individuals, what we now call the star system. And that was working just fine, but an interesting thing happened.

The 1950s, if you recall your market history, was a really strong bull market. Throughout the 1930s, the ’40s and most of the ’50s, it was simply understood that stocks yielded more than bonds because stocks were inherently riskier.

In 1958, all of a sudden, it flipped — and bond yields began to exceed the yield on stocks.

An associate by the name of Hardy Hall — the fellow who was managing The Investment Company of America® at the time — got very conservative, very bearish, at that point.

My grandfather at the same time was focusing on American Mutual Fund®, a much more conservative growth-and-income fund. But unlike Hardy Hall, my grandfather was remaining very constructive, very bullish.

So we had this basic problem that our conservative fund was very bullish, while our more aggressive fund was very bearish, which is a little bit upside down. And both of the managers were nearing retirement.

Faced with that problem, it was my father, Jon Lovelace — as a young man — who suggested, “Well, what if both of you managed in both?” And it was kind of a simple idea, but complex in implementation.

What they ended up putting in place was having all four managers manage a slice of each of the funds.

And, again, the rest is history. We’ve been using the Multiple Portfolio Counselor System now for over 50 years, and it has been really successful.

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The statements included in this section are the opinions and beliefs of the speakers expressed at the time the commentary was recorded and are not intended to represent those persons’ opinions and beliefs at any other time.

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