Archive for the tag 'American'

$200 Billion Fund — Growth Fund of America

Kurt Brouwer October 13th, 2007

Now, that’s a milestone. In fact, it’s two milestone. Diya Gullapalli of the Wall Street Journal reports [emphasis added]:

Welcome to the era of the $200 billion mutual fund.

In the past few days, American Funds’ Growth Fund of America, or GFA, became the first mutual fund to pass that milestone. Its rapid growth — just three years ago, the fund was less than half the size — raises a host of questions for investors.

The fund’s managers are feeling pressure to close it to new money. At the same time, performance has recently been average after years of outperformance. This month Morningstar downgraded the fund to four stars from five, a quantitative ranking based on risk-adjusted returns.

Passing the $200 billion mark is a big deal in the fund industry, which obsessively watches asset size. Big mutual funds are often cash cows for investment firms, because the costs to run them tend not to increase so significantly after they reach a certain size.

This isn’t the first time a goliath fund wrestled with growing pains. In 2000, Fidelity Investments’ Magellan Fund hit a peak of $110 billion, only to stumble after its star stock-picking manager made some bad choices, and is now around $45 billion.

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