Growth Fund of America

The largest equity fund in the business is divided into nine fiefdoms, but "It's a very cohesive group there," one analyst says

Growth Fund of America defies gravity. Although many mutual funds get scorned for asset bloat, Growth Fund of America, the nation's largest mutual fund ($137 billion in assets), doesn't appear to have any digestive problems. Its five-year annualized return of 3.1% may seem scant, but remember that's about 2.7% a year better than the Standard & Poor's 500 in the 2001-05 period. That's one reason this behemoth is only one of the three repeat performers to win our Excellence in Fund Management award in each of the last four years.

What also makes Growth Fund of America unique is the way it's managed. Although the fund is run by a team of nine, each of these "portfolio counselors" oversees a distinct pool of money. That means several managers may invest in the same stocks, although it's hard for outsiders to figure out which manager is doing what because Los Angeles-based Capital Research & Management, which runs the fund, doesn't grant media interviews.

Capital Research does, however, open the door to mutual funds analysts like Zoe Brunson, director of Standard & Poor's Mutual Fund Services. Brunson also likes the fact that traders at the firm work with one specific portfolio counselor.

GROWING PORTFOLIO.

 "It's a very cohesive group there," says Brunson, who visited the company last fall. "Any ideas that come up in market that the trader sees will feed back to the portfolio manager.... I get more and more comfortable with their approach." The diversified investment strategy keeps risk low -- the fund boasts below-average volatility relative to other growth funds.

Top holdings in the portfolio, which focuses primarily on big U.S. stocks, include Google (GOOG), Microsoft (MSTF), and Lowe's (LOW). In more recent years, it has bulked up on international stocks, and currently 17% of the fund is invested in foreign companies, including Roche Holding, Taiwan Semiconductor, Sanofi-Synthelabo, and Canadian Natural Resources.

To keep up with the inflow of cash, the firm has added three new managers since 2004. Companies in the portfolio have increased from some 200 a few years ago to nearly 280 names today.

With more than $7 billion invested in the fund so far in 2006, the heavy cash flows are something S&P will continue to monitor carefully. "Do [big inflows] worry us? Yes," Brunson says. Last year the fund gained 14%, nine percentage points ahead of the S&P 500. That's not easy for any fund to do, let alone the largest equity fund in the business.

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