As a finance professional, I often analyze mutual funds to understand their potential for investors. One fund that stands out is the American Century Ultra Fund (TWCUX), a large-cap growth fund with a long history. In this article, I dissect its strategy, performance, fees, and risks while comparing it to peers.
Table of Contents
What Is the American Century Ultra Fund?
The American Century Ultra Fund is a large-cap growth mutual fund managed by American Century Investments. Launched in 1981, it seeks long-term capital growth by investing in high-quality, large-cap U.S. stocks with strong earnings potential.
Investment Strategy
The fund follows a growth-oriented approach, targeting companies with:
- High revenue and earnings growth
- Strong competitive advantages
- Innovative business models
The portfolio managers use fundamental analysis to identify stocks expected to outperform. They focus on sector trends, valuation metrics, and macroeconomic conditions.
Performance Analysis
Historical Returns
The fund has delivered mixed results over the years. Below is a comparison of its 10-year annualized returns (as of 2023) against its benchmark, the S&P 500 Growth Index:
| Fund/Index | 1-Year Return | 5-Year Annualized | 10-Year Annualized |
|---|---|---|---|
| TWCUX | 8.5% | 10.2% | 12.1% |
| S&P 500 Growth | 9.1% | 11.4% | 13.5% |
Key Observations:
- The fund underperformed its benchmark over 5 and 10 years.
- Recent performance (1-year) is closer to the index but still lags slightly.
Risk-Adjusted Performance
To assess risk-adjusted returns, I use the Sharpe Ratio, which measures 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 (e.g., 10-year Treasury yield)
- \sigma_p = Standard deviation of portfolio returns
For TWCUX (10-year data):
- Average annual return = 12.1%
- Risk-free rate = ~2.5%
- Standard deviation = ~15%
Plugging in the numbers:
Sharpe\ Ratio = \frac{12.1 - 2.5}{15} = 0.64A Sharpe Ratio of 0.64 suggests moderate risk-adjusted performance. For comparison, the S&P 500 Growth Index had a Sharpe Ratio of 0.78 over the same period.
Expense Ratio and Fees
One drawback of TWCUX is its higher expense ratio:
| Fee Type | Cost (as of 2023) |
|---|---|
| Expense Ratio | 0.95% |
| Load Fee | None |
While no-load is a positive, the 0.95% expense ratio is above the category average (~0.85%). Over time, higher fees can erode returns.
Impact of Fees on Returns
Assume an initial investment of $10,000 over 20 years with an 8% annual return:
- With 0.95% fees:
With 0.50% fees (cheaper alternative):
FV = 10,000 \times (1 + 0.08 - 0.005)^{20} = \$49,725Difference: $5,880 – a significant impact.
Portfolio Composition
Sector Allocation (2023)
| Sector | Allocation (%) |
|---|---|
| Technology | 35% |
| Healthcare | 18% |
| Consumer Cyclical | 15% |
| Financials | 10% |
| Others | 22% |
The fund is heavily weighted in tech, which explains its high growth focus but also exposes it to sector volatility.
Top Holdings
| Company | % of Portfolio |
|---|---|
| Microsoft | 8.5% |
| Apple | 7.2% |
| NVIDIA | 5.8% |
| Amazon | 4.9% |
| Alphabet | 4.5% |
The top 10 holdings make up ~45% of the portfolio, indicating concentration risk.
Tax Efficiency
Since TWCUX is actively managed, it generates higher capital gains distributions than index funds. For taxable accounts, this can lead to higher tax liabilities.
Tax Cost Ratio
The tax cost ratio measures how much returns are reduced by taxes. For TWCUX, it’s ~1.2%, meaning taxes eat into returns more than in low-turnover index funds (e.g., Vanguard Growth Index: 0.3% tax cost ratio).
Who Should Invest in TWCUX?
- Growth-oriented investors willing to accept volatility.
- Long-term holders who can withstand market swings.
- Investors in tax-advantaged accounts (e.g., IRAs) to minimize tax drag.
Alternatives to Consider
| Fund Name | Expense Ratio | 10-Year Return |
|---|---|---|
| Vanguard Growth Index (VIGAX) | 0.05% | 13.8% |
| Fidelity Growth Company (FDGRX) | 0.76% | 14.2% |
| T. Rowe Price Growth Stock (PRGFX) | 0.65% | 13.0% |
Key Takeaway:
- Lower-cost index funds (like VIGAX) offer better long-term returns.
- Active competitors (like FDGRX) sometimes outperform TWCUX at lower costs.
Final Verdict
The American Century Ultra Fund has a decent track record but lags behind cheaper alternatives. Its higher fees and tax inefficiency make it less optimal for cost-conscious investors. However, if you believe in active management and its stock-picking strategy, it could fit a growth-focused portfolio.
