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Is American Funds Growth Fund of America A (AGTHX) a Strong Mutual Fund Pick Right Now?

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There are plenty of choices in the Large Cap Growth category, but where should you start your research? Well, one fund that might be worth investigating is American Funds Growth Fund of America A (AGTHX - Free Report) . AGTHX has a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify AGTHX in the Large Cap Growth category, an area rife with potential choices. Large Cap Growth funds invest in many large U.S. companies that are expected to grow much faster compared to other large-cap stocks. To be considered large-cap, companies must have a market cap over $10 billion.

History of Fund/Manager

AGTHX is a part of the American Funds family of funds, a company based out of Los Angeles, CA. American Funds Growth Fund of America A made its debut in December of 1973, and since then, AGTHX has accumulated about $88.56 billion in assets, per the most up-to-date date available. The fund is currently managed by a team of investment professionals.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund has delivered a 5-year annualized total return of 14.65%, and it sits in the middle third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 14.28%, which places it in the top third during this time-frame.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. The standard deviation of AGTHX over the past three years is 11.22% compared to the category average of 8.89%. The fund's standard deviation over the past 5 years is 10.33% compared to the category average of 8.66%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

Investors cannot discount the risks to this segment though, as it is always important to remember the downside for any potential investment. In AGTHX's case, the fund lost 48.8% in the most recent bear market and underperformed comparable funds by 0.17%. This means that the fund could possibly be a worse choice than its peers during a down market environment.

Investors should not forget about beta, an important way to measure a mutual fund's risk compared to the market as a whole. AGTHX has a 5-year beta of 0.98, which means it is likely to be as volatile as the market average. Alpha is an additional metric to take into consideration, since it represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which in this case, is the S&P 500. AGTHX has generated a positive alpha over the past five years of 1.65, demonstrating that managers in this portfolio are skilled in picking securities that generate better-than-benchmark returns.

Holdings

Investigating the equity holdings of a mutual fund is also a valuable exercise. This can show us how the manager is applying their stated methodology, as well as if there are any inherent biases in their approach. For this particular fund, the focus is largely on equities that are traded in the United States.

Right now, 90.18% of this mutual fund's holdings are stocks, which have an average market capitalization of $221.67 billion. The fund has the heaviest exposure to the following market sectors:

  1. Technology
  2. Other
  3. Finance

With turnover at about 24%, this fund is making fewer trades than its comparable peers.

Expenses

As competition heats up in the mutual fund market, costs become increasingly important. Compared to its otherwise identical counterpart, a low-cost product will be an outperformer, all other things being equal. Thus, taking a closer look at cost-related metrics is vital for investors. In terms of fees, AGTHX is a load fund. It has an expense ratio of 0.62% compared to the category average of 1.10%. So, AGTHX is actually cheaper than its peers from a cost perspective.

Investors should also note that the minimum initial investment for the product is $250 and that each subsequent investment needs to be at $50.

Bottom Line

Overall, American Funds Growth Fund of America A has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.

For additional information on this product, or to compare it to other mutual funds in the Large Cap Growth, make sure to go to www.zacks.com/funds/mutual-funds for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.


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