Introduction
As an investor, I always look for funds that balance growth potential with reasonable risk. One fund that has caught my attention is the American Century Growth Fund, managed by American Century Investments. This fund focuses on large-cap growth stocks, aiming for long-term capital appreciation. In this analysis, I will explore its investment strategy, historical performance, fees, risks, and how it compares to competitors.
Table of Contents
Understanding the American Century Growth Fund
Fund Overview
The American Century Growth Fund (TWGTX) invests primarily in U.S. large-cap growth companies with strong earnings potential. The fund managers use a bottom-up stock selection approach, meaning they focus on individual companies rather than macroeconomic trends.
Key Details:
- Ticker: TWGTX (Investor Class)
- Expense Ratio: 0.97% (as of latest prospectus)
- Inception Date: 1971
- Assets Under Management (AUM): ~$15 billion (as of 2023)
- Morningstar Rating: ★★★★ (4-star rating based on risk-adjusted returns)
Investment Strategy
The fund follows a growth-oriented strategy, targeting companies with:
- High revenue and earnings growth
- Strong competitive advantages (moats)
- Innovative business models
The portfolio managers, Glen Fogle and Michael Li, use quantitative and qualitative analysis to identify stocks with sustainable growth trajectories.
Performance Analysis
Historical Returns
The fund’s performance can be evaluated using annualized returns over different time horizons.
| Period | American Century Growth Fund (TWGTX) | S&P 500 Index | Russell 1000 Growth Index |
|---|---|---|---|
| 1-Year | +12.3% | +10.5% | +13.1% |
| 3-Year (Annualized) | +8.7% | +9.2% | +9.8% |
| 5-Year (Annualized) | +11.2% | +10.9% | +12.4% |
| 10-Year (Annualized) | +13.5% | +12.1% | +14.0% |
Data as of latest annual report (2023).
The fund has outperformed the S&P 500 over the past decade but lagged the Russell 1000 Growth Index slightly.
Risk-Adjusted Performance (Sharpe Ratio)
A key metric I use to assess performance relative to risk is the Sharpe Ratio:
Sharpe\ Ratio = \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 (volatility)
For TWGTX, the 5-year Sharpe Ratio is 0.85, compared to 0.78 for the S&P 500. This suggests better risk-adjusted returns than the broader market.
Portfolio Composition
Sector Allocation
The fund is heavily weighted in technology and consumer discretionary sectors, which aligns with its growth mandate.
| Sector | Allocation (%) |
|---|---|
| Information Technology | 42.5% |
| Consumer Discretionary | 22.1% |
| Healthcare | 15.3% |
| Communication Services | 10.7% |
| Others | 9.4% |
Top Holdings
As of the latest filing, the top holdings include:
- Microsoft (MSFT) – 9.8%
- Apple (AAPL) – 8.5%
- Amazon (AMZN) – 6.2%
- NVIDIA (NVDA) – 5.9%
- Alphabet (GOOGL) – 4.7%
These holdings reflect a concentration in mega-cap tech, which has driven much of the fund’s recent performance.
Fees and Expenses
The fund’s expense ratio of 0.97% is higher than some passive alternatives (e.g., Vanguard Growth ETF at 0.04%). However, it is competitive among actively managed growth funds.
| Fund | Expense Ratio |
|---|---|
| American Century Growth (TWGTX) | 0.97% |
| Fidelity Growth Company (FDGRX) | 0.76% |
| T. Rowe Price Growth Stock (PRGFX) | 0.61% |
| Vanguard Growth ETF (VUG) | 0.04% |
For a $10,000 investment, the annual cost would be $97, compared to $4 for VUG. Investors must decide if the active management premium is justified.
Tax Efficiency
Since the fund is actively managed, it has higher turnover (~45%), leading to capital gains distributions. This makes it less tax-efficient than index funds. Investors in taxable accounts may prefer ETFs like VUG or IWF for better tax treatment.
Who Should Invest in This Fund?
Ideal Investor Profile
- Long-term investors seeking growth exposure
- Those comfortable with tech-heavy portfolios
- Investors willing to pay higher fees for active management
Who Should Avoid It?
- Cost-conscious investors (passive funds may be better)
- Those seeking value or dividend income
- Investors in high tax brackets (due to capital gains distributions)
Final Thoughts
The American Century Growth Fund has delivered solid long-term returns, but its higher fees and tax inefficiency may deter some investors. If I were looking for active growth exposure, I would consider it, but I would also compare it to lower-cost alternatives like VUG or FDGRX.
Would I invest in it? Yes, but only in a tax-advantaged account (like an IRA) and if I believe in the managers’ stock-picking ability. For taxable accounts, I’d lean toward index ETFs for better tax efficiency.
