This Fund Is Putting Behemoth Competitors to Shame.

WHILE several of the hottest mutual fund houses have cooled off in 2000, one of their quieter competitors has sent up a rocket.

The surprise standout is 27-year-old Growth Fund of America, managed by Capital Research & Management Co., a Los Angeles firm that specializes in "load" funds sold through brokers.

At $37 billion in assets, the team-managed Growth Fund of America ranks 10th on the list of the largest stock funds, as tallied by the research firm Morningstar Inc. in Chicago. Lately Growth Fund has been running circles around its nine bigger counterparts, which carry the colors of the mighty fund stables Janus Capital Management, Fidelity Investments, American Century Investments and the Vanguard Group.

Thus far this year, AGTHX (Growth Fund of America's ticker symbol) has gained about 22 percent, despite the spring sell-offs that hit the market for computer, telecommunications and many other fast-moving growth stocks.

The best showing any other of the Big 10 could manage has been an 8.5 percent return at the $46 billion Janus Fund in Denver.

Over the last three years, Growth Fund of America averaged a 35 percent annual gain, outpacing its nearest rival, the Janus Fund, at 33 percent.

For the sake of comparison, the biggest fund of all, the $104.2 billion Vanguard 500 Index Fund, has gained 3.6 percent this year and an average of 21 percent over the past three years. The Fidelity Magellan Fund, second largest with $103.5 billion, shows a 5.4 percent return in 2000 and an average of 23 percent over the past three years.

"Picking winners is nothing new for the fund, but its aggressive positioning is a fairly recent change," says Kunal Kapoor, a Morningstar analyst, in his latest report on Growth Fund of America. "The performance is especially amazing in light of the recent slide in technology and telecommunication stocks."

One sign of a more aggressive approach: The reported rate of turnover in the fund's stockholdings, while still only about half the industry average at 46 percent in 1999, has increased each year since 1995, when it stood at 27 percent.

Growth Fund has 38 percent of its portfolio in "technology" stocks, by Morningstar's calculations, compared with 23 percent in services stocks and 17 percent in health care. It has scored this year with big investments in semiconductor companies PMC Sierra Inc., Texas Instruments Inc. and Micron Technology Inc.

Many other big growth funds, meanwhile, have had to contend with letdowns in several computer and Internet high-flyers. As of June 30, Growth Fund of America owned no shares of Amazon.com Inc., which is down 48 percent this year, and had less than 0.4 percent of its assets in Microsoft Corp., which has fallen 39 percent.

This is pretty nimble work in a fund group better known for consistency than flash. Capital Research's $325 billion American Funds group trumpets its "long-term, value-oriented approach" and "our emphasis on consistent returns with low volatility."

Growth Fund lists seven managers, whose time in service with Capital Research ranges from 15 to 41 years. As is standard practice at the firm's funds, each manager is given a separate piece to invest and another chunk is run by a group of research analysts.

No star system here. "We believe the multiple portfolio counselor system provides a sustainable method of achieving fund goals," says Jim Rothenberg, Cap Research's president, on the firm's Web site at www.americanfunds.com.

Kapoor at Morningstar lauds Growth Fund of America for "low expenses, good tax efficiency and solid long-term returns. It's a solid foundation for a long-term portfolio."

But he also suggests keeping a close eye on it, given its newfound aggressiveness. "This positioning creates a bit of a dilemma for investors," Kapoor says. "On the one hand, the fund truly looks like a pure-growth offering for the first time in years. On the other hand, it is likely to be more volatile than it has been."

It remains to be seen how well and how long Growth Fund of America can keep up its high-flying act. For good or ill, it already appears to have made some of Capital Research's famously patient, conservative investors more conscious of the latest performance numbers.

"Anyone have any thoughts on exchanging all or part of my Investment Co. of America (another Capital Research fund) holdings for Growth Fund of America?" asks a recent query on Morningstar's Web site. "Exchange Washington Mutual (still another Capital Research fund) for Growth Fund?" inquires somebody else.

Performance-chasing, anyone? Plainly, that's not the sort of shorter-term thinking Capital Research is eager to encourage. It's what you may get, though, when you have a hot fund on your hands.

Chet Currier is a columnist for Bloomberg News.