Introduction
As a finance professional, I often analyze mutual funds to determine their suitability for different investors. One fund that stands out is the American Century Select Fund (TWCIX), a large-cap growth mutual fund with a long track record. In this article, I dissect its strategy, performance, fees, and how it compares to peers. I also examine its role in a diversified portfolio, considering US economic conditions.
Table of Contents
What Is the American Century Select Fund?
The American Century Select Fund is an actively managed mutual fund focusing on large-cap US growth stocks. Launched in 1986, it aims for long-term capital appreciation by investing in companies with strong earnings potential. The fund managers use a bottom-up stock selection approach, emphasizing competitive advantages, innovation, and sustainable growth.
Key Fund Details
| Metric | Details |
|---|---|
| Ticker Symbol | TWCIX (Investor Class) |
| Expense Ratio | 0.82% |
| Assets Under Management (AUM) | $6.8 billion (as of 2023) |
| Inception Date | 1986 |
| Morningstar Category | Large Growth |
| Minimum Investment | $2,500 (varies by share class) |
Investment Strategy and Portfolio Composition
The fund’s managers seek companies with high revenue growth, strong margins, and durable competitive advantages. They avoid rigid sector allocations, instead letting stock selection drive performance.
Top Holdings (As of Latest Filing)
| Company | Weight (%) | Sector |
|---|---|---|
| Microsoft Corp | 9.2% | Technology |
| Apple Inc | 8.5% | Technology |
| Amazon.com Inc | 6.7% | Consumer Discretionary |
| NVIDIA Corp | 5.3% | Technology |
| Alphabet Inc (A) | 4.9% | Communication Services |
The fund leans heavily into technology (≈40%), followed by consumer discretionary (≈20%) and healthcare (≈15%). This reflects a growth-oriented bias, which can lead to higher volatility in market downturns.
Performance Analysis
Historical Returns vs. Benchmark (S&P 500)
| Period | TWCIX Annualized Return (%) | S&P 500 Annualized Return (%) |
|---|---|---|
| 1-Year | 18.4 | 16.2 |
| 3-Year | 9.1 | 8.5 |
| 5-Year | 12.7 | 11.3 |
| 10-Year | 14.2 | 12.1 |
The fund has outperformed the S&P 500 over most time horizons, though with higher volatility. The Sharpe ratio, a measure of risk-adjusted return, stands at Sharpe = \frac{R_p - R_f}{\sigma_p}, where:
- R_p = Portfolio return
- R_f = Risk-free rate (e.g., 10-year Treasury yield)
- \sigma_p = Portfolio standard deviation
For TWCIX, the Sharpe ratio has been 0.85 over the past decade, compared to 0.78 for the S&P 500, indicating slightly better risk-adjusted returns.
Drawdowns and Volatility
Growth funds like this tend to suffer in bear markets. During the 2022 downturn, TWCIX fell -27.5%, worse than the S&P 500’s -19.4%. This is typical for growth-oriented funds, which are sensitive to interest rate hikes.
Fees and Expenses
With an expense ratio of 0.82%, TWCIX is moderately priced for an active fund. However, passive index funds like Vanguard’s VIGAX (0.05%) are far cheaper.
Cost Comparison Over 20 Years
Assume a $10,000 initial investment with a 7% annual return:
- TWCIX (0.82% fee): Final value = 10,000 \times (1.07 - 0.0082)^{20} = \$35,240
- VIGAX (0.05% fee): Final value = 10,000 \times (1.07 - 0.0005)^{20} = \$38,697
The $3,457 difference highlights the impact of fees over time.
Tax Efficiency
Active funds generate higher capital gains distributions than index funds. In 2022, TWCIX distributed $2.14 per share in capital gains, leading to tax liabilities for investors in taxable accounts.
Who Should Invest in This Fund?
Pros
✔ Strong long-term performance
✔ Experienced management team
✔ Focus on innovative, high-growth companies
Cons
✖ Higher fees than passive alternatives
✖ Tax-inefficient for taxable accounts
✖ Higher volatility in downturns
Best Fit For:
- Investors seeking aggressive growth
- Those with a long-term horizon (10+ years)
- Retirement accounts (401(k), IRA) to avoid tax drag
Alternatives to Consider
| Fund | Expense Ratio | Strategy |
|---|---|---|
| Vanguard Growth Index (VIGAX) | 0.05% | Passive large-cap growth |
| Fidelity Growth Company (FDGRX) | 0.76% | Active growth |
| T. Rowe Price Blue Chip Growth (TRBCX) | 0.69% | Large-cap growth |
Final Thoughts
The American Century Select Fund is a solid choice for growth investors willing to pay higher fees for active management. However, index funds may offer better cost efficiency. I recommend this fund only for tax-advantaged accounts and investors comfortable with market swings.
