Introduction
I have spent years analyzing mutual funds, and American Century Investments stands out as a key player in the industry. Their mutual funds cover a broad spectrum—equities, fixed income, and multi-asset strategies. In this article, I dissect their offerings, performance, fees, and whether they fit into a well-constructed portfolio.
Table of Contents
Who is American Century Investments?
Founded in 1958, American Century Investments manages over $200 billion in assets. They emphasize active management, though they also offer index-based strategies. Their funds cater to different investor profiles—growth, value, and income-focused.
Key Features of American Century Mutual Funds
- Active Management Focus: Most funds rely on fundamental research rather than passive indexing.
- Wide Range of Offerings: From aggressive growth to conservative income strategies.
- Competitive Expense Ratios: Some funds charge below industry averages, while others are pricier.
Performance Analysis
Historical Returns vs. Benchmarks
Let’s examine the American Century Ultra Fund (TWCUX), a large-cap growth fund. Over the past decade, it has delivered an annualized return of 12.3\%, slightly edging out the S&P 500’s 11.8\%.
| Fund | 1-Year Return | 5-Year Annualized | 10-Year Annualized | Expense Ratio |
|---|---|---|---|---|
| TWCUX | 8.5\% | 10.2\% | 12.3\% | 0.97\% |
| S&P 500 Index | 7.9\% | 9.8\% | 11.8\% |
0.03\% (VFIAX) |
*Data as of latest annual report.*
While TWCUX outperforms, the higher expense ratio eats into net gains. For a $10,000 investment over 10 years:
– **TWCUX**: FV = 10,000 \times (1 + 0.123)^{10} = \$31,944
– **S&P 500 Index**: FV = 10,000 \times (1 + 0.118)^{10} = \$30,448
S&P 500 Index: FV = 10,000 \times (1 + 0.118)^{10} = \$30,448
The difference? $1,496 before taxes. After accounting for the expense ratio, the gap narrows.
Risk-Adjusted Returns
Using the Sharpe Ratio, we measure excess return per unit of risk:
Sharpe\ Ratio = \frac{R_p - R_f}{\sigma_p}Where:
- R_p = Portfolio return
- R_f = Risk-free rate (assume 2\%)
- \sigma_p = Portfolio standard deviation
For TWCUX:
- Avg return = 12.3\%
- Std dev = 15\%
- Sharpe = \frac{0.123 - 0.02}{0.15} = 0.69
For the S&P 500:
- Avg return = 11.8\%
- Std dev = 14\%
- Sharpe = \frac{0.118 - 0.02}{0.14} = 0.70
Conclusion: The S&P 500 delivers better risk-adjusted returns despite TWCUX’s slight edge in raw performance.
Expense Ratios and Cost Efficiency
American Century’s expense ratios range from 0.29\% (low-cost index funds) to 1.25\% (specialized active funds).
Impact of Fees on Long-Term Returns
Assume two funds:
- Fund A: 0.3\% expense ratio, 10\% annual return
- Fund B: 1.0\% expense ratio, 10.5\% annual return
After 20 years on a $50,000 investment:
- Fund A: FV = 50,000 \times (1 + 0.097)^{20} = \$318,670
- Fund B: FV = 50,000 \times (1 + 0.095)^{20} = \$306,720
Fund A wins despite lower raw returns—fees matter.
Tax Efficiency
American Century’s tax-cost ratio (measure of tax drag) for some equity funds is around 0.8\%, higher than Vanguard’s 0.5\%. This means more taxable distributions, which hurt after-tax returns.
Who Should Invest in American Century Mutual Funds?
- Active Management Believers: If you think skilled managers can beat the market, their funds may appeal.
- Growth Investors: Funds like TWCUX focus on high-growth stocks.
- Income Seekers: Their bond funds, such as American Century Government Bond Fund (CPTNX), offer steady yields.
Alternatives to Consider
| Fund | Category | Expense Ratio | 10-Year Return |
|---|---|---|---|
| TWCUX | Large Growth | 0.97\% | 12.3\% |
| VIGAX (Vanguard) | Large Growth | 0.05\% | 12.1\% |
| FBGRX (Fidelity) | Large Growth | 0.64\% | 12.5\% |
Vanguard’s VIGAX offers nearly identical returns at a fraction of the cost.
Final Verdict
American Century’s funds deliver solid performance, but costs erode value. If you prefer active management and believe in their strategies, they’re worth considering. For cost-conscious investors, low-fee index funds may be better.
