Growth Fund of America moves in fits and starts.
This fund is one of the few domestic-focused offerings from the estimable American Funds stable that emphasizes capital appreciation. It puts nearly 75 percent of its assets in technology and services -- mainly media companies -- whereas most of its siblings avoid sector concentrations.
The fund's managers follow a growth-at-a-reasonable-price strategy, often taking positions in fallen growth stocks such as Cendant. A market darling in 1997, the stock was hammered last year after revelations of accounting irregularities. It dropped more than 40 percent, and management bought in. Cendant is among the fund's top 10 holdings and has recently staged a healthy rally.
Despite some short-term hiccups, a buy-and-hold philosophy has led to decent returns over the long run. Weak media and cable stocks hurt the fund in 1995 and 1996, as did its technology holdings in 1997. Thus, the fund finished in the large-blend category's bottom half in three consecutive years.
With both sectors hot last year, however, the fund rebounded strongly, ranking in the category's top decile for the year.
This year, the fund is maintaining that momentum because of stocks such as Time Warner and Cablevision, which have surged because investors have rewarded their efforts to deliver a broad range of services over their cable lines. Overall, the fund ranks in the large-blend category's top half over every trailing period.
Still, the fund probably won't appeal to investors seeking an aggressive-growth offering. But for those looking to wet their toes in growth stocks, it offers growth exposure without excessive volatility: Its perennial 10 percent cash position has limited volatility. The fund has lost less than most of its peers in such down markets as 1997's fourth quarter and last year's third quarter.
Growth Fund of America
Fund managers: Gordon Crawford, James Drasdo, William Newton, Don O'Neal, James Rothenberg, R. Michael Shanahan
Largest investment sector: Services
Style: The fund's median investment is in growth stocks of companies with large market capitalizations.
Total returns as of 10/22/99
Year-to-date: 16.96 percent
One year: 42.17 percent
Three-year annualized: 28.13 percent
Five-year annualized: 23.70 percent
Risk vs. domestic equity funds: Average
Morningstar rating: 4 stars
Maximum sales charge: 5.75 percent
Phone number: 800-421-4120