American Funds Dumps PetroChina

The Chinese oil company has financial ties to the Sudanese government.

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American Funds quietly extricated itself from PetroChina during the fourth quarter of 2009, according to the fund provider's most recent filings, which it made available this month. The filings show that American Funds finished the year with $2.7 million worth of PetroChina shares, down from the $190 million stake it had maintained just a few months before. 

On its surface, this sudden shift appears to represent a drastic about-face for American Funds, which in November fought to maintain its right to invest in PetroChina despite protests from divestment advocates, who maintain that the Chinese oil company's financial ties to the Sudanese government make the fund company complicit in the genocide in Darfur. 

At American Funds' November shareholder meeting, a group of investors backed by the Boston-based group Investors Against Genocide tried to require portfolio managers to sell their positions in PetroChina. American Funds' leadership came out against forced divestment, and shareholders opted by a convincing margin to allow the funds to hold PetroChina shares. 

[See Mutual Fund Investors Reject Divestment Proposals.] 

American Funds has remained tight-lipped about why its managers, despite the outcome of the vote, ultimately decided to virtually eliminate their positions in PetroChina. "We never discuss the reasons we buy or sell securities under any circumstances," says Chuck Freadhoff, a company spokesperson. 

There are two possible explanations. The first is that a combination of negative press coverage and disgruntled investors prompted American Funds to re-evaluate its position. "In the course of opposing the proposal, they certainly got some bad publicity, and they definitely resulted by their action in having several million of their shareholders of record be upset with them," says Eric Cohen, chairman of Investors Against Genocide. 

Another possibility, though, is that American Funds had been planning to divest all along. American Funds opposed the November proposals because they would have forced portfolio managers' hands, but the fund company never ruled out having individual managers voluntarily unload their PetroChina holdings. "It's pure speculation to assume that the [November] vote was the catalyst," says Freadhoff. 

All told, only three American Funds offerings—Capital Income Builder, EuroPacific Growth, and Capital World Growth and Income—were affected by the sell-offs. Together, the three funds got rid of roughly 99 percent of their PetroChina holdings during the last quarter of 2009. American Funds has not released any filings showing more recent activity, and Freadhoff declined to say whether the three funds have gotten rid of their remaining shares. 

Cohen expects the funds to completely divest themselves from PetroChina soon, if they haven't done so already. "This is not a company that holds a small number of dollars worth of a stock," he says of American Funds. "They're either in fairly substantially or they're out, and it's pretty clear that they've decided to be out."