If you have a 401(k) chances are you own something from American Funds – a 33 fund lineup managed by Capital Research and Management (“CRM”). They may not be a household name like Fidelity or Vanguard but make no mistake – they’re a behemoth at about $1.25 trillion under management.

Historically CRM has been happy to fly below the radar. Of late they’ve started to make noise. Conspiracy theorists suspect it’s because of the massive outflows they’ve seen as investors have fled for better performing funds. It’s the classic “make noise so someone pays attention to us” approach – analysis for the sake of analysis rather than a true adding of value.

Just what brilliance have they decided to share with us? Well it’s a topic so new and unique that I can hardly contain my excitement. It’s the active vs. passive debate. (Insert eye roll here.)

Their first foray into this topic was a June 2014 article entitled “The Active Advantage.” It was rubbish. The study convincingly showed that CRM’s stock funds excelled time after time based upon low fees and high ownership levels of the fund managers – the proverbial eating of one’s own cooking. Suspiciously the report showed no apparent advantage to investing in other companies’ actively managed funds even when those companies followed the same low fee / high ownership approach.

Their latest attempt at addressing the tired active vs. passive debate is a September 2014 article entitled “Expect More From the Core.” It arrives at many of the same conclusions for the same reasons.

What’s fascinating about these recent reports is not the topic nor the findings but the attempt at diverting attention from performance issues. This of course is a microcosm to what drives performance and what creates perception.

American Funds is a popular choice amongst the brokerage community as it’s quite common to pay sales charges or “loads” north of 5% for the pleasure of investing in these purported low cost funds. American Funds is also an easy fund family to defend because of their track record. As any Chief Information Officer / Chief Technology Officer will tell you there may be better options but no one has ever lost a job by choosing Microsoft.

Is the American Funds track record that good? If so why? Therein lies the rub.

American Funds has been around a long time but the true rise to prominence in the brokerage and commission advisory world came after the bursting of the dot-com bubble. These so-called advisors providing “insight” to clients pointed to how American Funds sidestepped the chaos and carnage.

Clients who rely upon these “trustworthy” advisors were all too eager to sign up. “Gee, the folks at American Funds must be smart. They must have seen this coming. They must know something everyone else doesn’t. They’ll be able to do this over and over and over.” Nonsense.

The investment policy at American Funds precludes investing in the very securities that drove up the major market averages in the late 1990s. While every S&P 500 index fund and growth fund chased after the sky high prices of established players like Cisco (at one point the largest U.S. company based upon market capitalization) and new entrants – many of which were true startups with no earnings such as AOL, Books-a-Million, GeoCities, Global Crossing, inktomi, InfoSpace, JDS Uniphase, Lucent, Lycos, Nortel, Pets.com, Webvan, WorldCom, etc. – American Funds sat on the sidelines.

No one seemed to pay attention. Instead many people were all too happy to chase returns, buy index and growth funds that were going up (without understanding why), buy individual stocks with dot-com in the name (without caring about the lack of earnings) and try their hand at day trading (it’s OK to admit you had an E*Trade account – we already know). There was excitement in the air. It was sexy. Telling your friends and co-workers about how you turned $100 into $10,000 in 30 seconds helped with your self-esteem issues.

And then comes March 2000. Those shares you owned of Toenails.com (again, it’s OK to admit it – we already know) went from $100 to $1. The rationalizations kicked in. “The market is rigged.” Really?

The painful truth is many investors bought stocks of companies they had no business buying. They bought on faith, hope, fear, greed, jealousy and guesswork. It’s the anti-Peter Lynch idea of buying what you know.

Therefore the magic formula of American Funds isn’t so magic after all. They weren’t omniscient. They simply avoided investing in the speculative end of the market because their charter precludes them from doing so. Period. End of story.

We’re not picking on American Funds. CRM is a fine firm. We chose them, however, as they’re the proverbial poster child to tell the classic “buyer beware” tale.

The lesson? If you’re going to own a stock, bond, mutual fund or ETF make sure you know how they do what they do. Make sure it’s a logical process that can be sustained and repeated. It will go a long way to understanding what your expectations should be and whether returns make sense in context. Of course you can always ignore such logical advice and, instead, stare blindly at absolute performance numbers, Morningstar star ranking, the level of the S&P 500 and the like…but then why not just flip a coin?!