The Wall Street Journal reported recently that American Funds' Growth Fund of America just passed the $200-billion asset mark. How does a mutual fund grow to manage $200 billion? A 5.75% front-end sales load and a 12b-1 kickback to bribe brokers to push the fund is a start. The fund also must remain open regardless of what is in the best interest of shareholders.

The Growth Fund of America should have been closed at about $100 billion. Just to take a 2% position in a new stock requires the fund to invest $4 billion. Young Research estimates that the number of stocks that the Growth Fund of America can buy without violating the fund's fundamental investment policies is 87. For a 1% position, the field of candidates moves out to only 185. After accounting for management fees and transaction costs (huge when you take a $4-billion position) the only chance the Growth Fund of America has of even matching the performance of the S&P 500 is through sheer luck.