American Funds specializes in steady

"Do one thing, and do it well," the old line goes.

For Los Angeles-based money manager American Funds, that "one thing" for the past 80 years has been to invest in stocks worldwide with a buy-and-hold approach.

Racking up healthy returns for its investors over the decades, American Funds quietly has grown to be the second-largest U.S. fund company, with about $880 billion in long-term assets to No. 1 Vanguard Group's $1 trillion.

And in the business of actively managed stock funds — those that try to beat the market in the long run rather than just track an index like the Standard & Poor's 500 — American manages more money than closest rivals Fidelity Investments and Vanguard combined.

But this year, the public's appetite for American's straightforward stock-investing strategy has waned markedly. The torrent of new money that poured into the company's funds from 2001 through 2007 has begun to reverse.

Even as stock markets worldwide have recovered dramatically since early March, many of American's biggest funds have been suffering net outflows. Redemptions by investors leaving American Funds outpaced new purchases by $19.3 billion overall in the first nine months of this year, according to Morningstar.

That isn't a catastrophic outflow for a company with $880 billion in assets. Still, when investors read that others are pulling cash from funds they own, they may become suspicious: What do the sellers know that they don't?

With American's funds, the selling may be less about what investors know than what they feel in their gut: Their tolerance for risk has changed dramatically since the financial markets' crash last year, which slammed American's portfolios with the rest of the industry.

That gut check may have long-term implications for a stock-focused fund shop. But unlike many of its rivals, American isn't willing to play to sudden swings in investors' perception of markets.

In a sense, American just doesn't believe the customer is always right.

Case in point: Many individuals have turned away from stock funds this year in favor of bond funds, an obvious response to fears the equity market could collapse again.

Dick Ferree, a principal at financial adviser Ferree, McCarthy & Price in Santa Ana, Calif., says he began paring back some of his clients' American Funds stock portfolios last year, shifting assets to bond funds to reduce the risk of loss.

Before the markets' crash, it wasn't unusual for investors to be comfortable holding 70 percent of their total assets in stocks. "But nobody is at 70 percent equities now," Ferree said.

American offers bond funds, but their assets are dwarfed by the company's stock-fund assets. And when investors think of bonds, they're more likely to think of other fund brand names — notably Pimco in Newport Beach, Calif. — that are far better known for managing bond assets.

The industry's typical response to a surge in investor demand for a particular type of fund is to rush to create more of what people want.

American, by contrast, has always moved glacially with new products. In the last three years the company has launched just two new funds, bringing its total menu to 30 portfolios (besides its so-called target-date retirement funds).

Most other major fund outfits offer two to three times that number of funds.

What's more, American's relatively limited menu lacks the type of specialty funds many investors have sought over the past two years in the name of diversification.

You want a commodity or gold fund? American has none. Ditto for real-estate-oriented funds, and for exchange-traded funds that track narrow market sectors.

And while some fund enterprises have introduced hedge-fundlike portfolios whose managers can "short" stocks — betting on falling prices — that concept is anathema to American.

The company's uncomplicated approach is to offer well-diversified stock funds that mostly focus on blue-chip issues in the U.S. and abroad. The top 10 holdings of the company's flagship Growth Fund of America, for example, include Microsoft, Coca-Cola and Bank of America.

American is old-school in more ways than one. Its parent, Capital Group, is owned by its top executives and fund managers, not by outside shareholders. Its funds all are team-managed rather than individually managed.

And Capital always has shunned publicity, which is why you rarely see an American Funds manager quoted in the media or doing a TV stint.

A company spokesman, Chuck Freadhoff, says the cash outflows this year haven't surprised American and aren't causing problems. (One risk is that, if redemptions mount, portfolio managers could be forced to sell stocks they would otherwise prefer to keep.)

"We tell investors, 'Don't look at the cash flows, look at our results,' " Freadhoff said.

This year those results are a mixed bag. Growth Fund of America, up 29.8 percent year to date through Friday, has trounced the S&P 500 index's 21.9 percent gain. But another of American's huge portfolios, Washington Mutual Investors, has managed just a 13.4 percent gain.

Still, American stresses a long-term view of the markets and says it expects its investors to have the same philosophy. That's the key reason it doesn't sell its funds directly to the public — other than through 401(k)-type plans — but instead has always relied on financial advisers. American expects the advisers to keep clients focused on the long haul.

That is self-serving, of course. But measured over the past 20 years, many of American's funds have delivered returns that have outpaced the market. It isn't a fluke the company has mushroomed to this size.

What about the next 20 years? To stay with American Funds and its bread-and-butter market strategy, investors essentially have to make two bets: First, that stock markets worldwide aren't headed for a calamity bigger and more sustained than what 2008 brought; and second, that American's stock-choosing will provide market-beating returns justifying the management adviser fees they pay for the privilege of owning the funds.

American's quiet investment strategy has 80 years of history on its side. Its investors will have to decide if that's enough, because the company isn't likely to offer them other options.