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Funds Getting Their Groupon

Plus, Longleaf directors disclose their big fund stake, PIMCO and BlackRock join "absolute return" bandwagon, and more.

Ryan Leggio, Fund Analyst, 06/13/2011

While a debate rages about whether Groupon Inc. is worth $30 billion or much, much less, several of the largest mutual fund managers, like American Funds and T. Rowe Price TROW, have bought stakes in the firm, which filed this week for an initial public offering.

In regulatory filings, major asset managers have been showing up as recent purchasers of the hottest Internet firms that are on the brink of going public. For example, in the past year, Fidelity and T. Rowe Price bought stakes in Facebook and, along with American Funds, bought stakes in Zynga Gaming Network. The purchases are being made well after the firms have established growth records and, more than anything, may reflect the edge that these large fund companies have simply because of their size when investors are vying for a stake in hot firms.

Moreover, given the size of the Fidelity and American funds and the limited amount of shares being offered to begin with, the stakes in firms like Groupon are small, so investors should not expect these investments to make a material difference in overall returns.

For example, American Funds Growth Fund of America AGTHX has the largest stake in Groupon, bought last December and valued at $175 million, according to Groupon's registration filing. As one of the biggest funds in the industry, with $162.4 billion under management, its stake amounts to about one tenth of 1 percent (0.10%) of the fund's assets.

The next largest competitor in the large-growth category, Fidelity Contrafund FCNKX, owns more than $100 million in Groupon. Managed by William Danoff, Contrafund also has $74 million in Facebook. Here, too, the investment amounts to a small stake in the $80 billion Contrafund. However, it's evident that Danoff has a keen interest in Internet-related stocks, as his fund's second-largest holding is Google GOOG.

Meanwhile, several of T. Rowe's funds, like T. Rowe Growth Stock PRGFX and T. Rowe Price Science & Technology PRSCX, own stakes in Groupon that are each less than 0.5%.

When these stakes are combined within a smaller fund, the stake can be somewhat meaningful. For example, Morgan Stanley Mid Cap Growth DGRAX, with $402.4 million in assets, has stakes in Groupon and Zynga that together equate to 1.4% of the fund.

Longleaf Partners Trustees Invest Heavily in Funds They Oversee
As they must with their portfolio managers, mutual funds are required by the SEC to report whether fund board members invest in the funds they oversee and, if so, how much. However, the reporting ranges are different. With fund managers, the top range is "over $1 million." For members of fund boards, the top level is merely "over $100,000."

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