This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

What Ails Fairholme?

Part of the success can be attributed to its relatively low expense ratio. Because of its bulk, the fund enjoys economies of scale and can afford to charge annual expenses of 0.69%, compared to 1.34% for the average large growth fund. In addition, Growth Fund of America avoids some of the problems of bloat by using an unusual management structure. The fund employs nine managers, and each is given a separate piece of the assets to oversee. In effect, every manager oversees a portfolio of about $10 billion to $15 billion, a manageable size. This is very different from typical funds, which lump all assets in a pool that is overseen by one manager or a small team.

The biggest fund of all is PIMCO Total Return, an intermediate-term bond fund with $242 billion in assets. Portfolio manager Bill Gross long argued that his fund was not too big because it focused on sectors such as government bonds and mortgage-backed securities, enormous markets that enable easy trading. Gross has argued that his size provides an advantage because he can negotiate favorable terms with brokers.

PIMCO typically makes a series of small bets, emphasizing Treasuries one year and foreign bonds the next. Most of the calls have paid off. During the past ten years, the fund has returned 6.7% annually, outdoing 93% of peers. Earlier this year, Gross became concerned that interest rates would rise, a development that could hurt bond prices. To avoid trouble he held cash and shifted to shorter bonds, which suffer less damage when rates climb. The move proved off target. It was an example of Gross making a rare mistake. The poor results should not be attributed to a bloated portfolio.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
3 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,880.36 -31.75 -0.19%
S&P 500 1,970.07 +0.12 0.01%
NASDAQ 4,462.9020 +20.2040 0.45%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs