American Funds The Growth Fund of America

Scorecard
4 / 5 Stars
Lipper
4 4 5 5 2
Zacks Investment Research
3 (Hold)
Standard & Poor's
4 / 5 Stars
TheStreet.com
A- (Buy)

U.S. News evaluated 466 Large Growth Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Note: Profile written for different share class.

Performance

The fund has returned 31.33 percent over the past year, 14.60 percent over the past three years, 21.99 percent over the past five years, and 8.15 percent over the past decade.

Trailing Returns Updated 02.28.2014
Year to date 3.1%
1 Year 31.3%
3 Years (Annualized) 14.6%
5 Years (Annualized) 22.0%
10 Years (Annualized) 8.2%

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Summary

The American Funds Growth Fund of America offers a combination of seasoned management, low fees, and a strong portfolio.

As of March 05, 2014, the fund has assets totaling $135.17 billion. The fund invests at least 65 percent of its assets in large-cap growth companies, allocating small parts of the portfolio to debt and foreign shares.

Over the long term, the fund's returns have been solid. Its 10- and 15-year returns are among the best in its category. Lately, though, the fund has not done as well as its peers, and Morningstar attributes this to its massive size. Morningstar says: "The fund's assets ballooned from $27 billion in 1999 to a whopping $91 billion in 2007 (the year it turned in its worst results relative to the large-growth category)." For now, the fund is investing in typical growth names in the tech sector like Apple and Google. Investments in cyclical technology stocks, although damaged in the downturn, rebounded quickly as markets stabilized in 2009. The fund has returned 31.33 percent over the past year and 14.60 percent over the past three years.

In the past, management has struggled to time its investments with technology cycles, and returns have reflected missteps in timing and some poor investment choices, like Fannie Mae and AIG, according to Morningstar. Still, the fund’s managers have a history of picking solid growth stocks and being willing to make occasional bets on beaten-down names with turnaround potential. More broadly, the fund’s size may make it less nimble than some smaller rivals. It had top quartile returns in the large-growth category from 1998 through 2006. The fund has returned 21.99 percent over the past five years and 8.15 percent over the past decade.

Investment Strategy

According to the fund’s prospectus, its objective is to invest in a diversified portfolio of common stocks that provide long-term growth of capital. The fund will invest in cyclical companies, particularly in the technology sector, as well as turnarounds and those with unlocked value. The fund’s portfolio includes a variety of investments across industries and individual companies. The management is willing to hold a sizable chunk of cash, depending on market conditions. Turnover in the fund’s portfolio is relatively low compared with other growth funds, and the fund’s managers will accept short-term volatility in exchange for longer-term above-average gains, according to Value Line.

Role in Portfolio

Morningstar describes this fund as a “core” player in an investment portfolio, calling the fund an “excellent choice to anchor the growth portion of a portfolio.”

Management

Like other funds in the American Funds family, the Growth Fund of America is advised by Capital Research & Management Co., which oversees multiple portfolio counselors. The fund’s portfolio is divided into segments run by individual counselors who decide how their particular segments should be invested. Morningstar calls the fund's seasoned portfolio counselors “first-rate.” In addition to the counselors, a large staff of career analysts runs part of the fund.

Fees

American Funds The Growth Fund of America has an expense ratio of 0.68 percent.

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Risk

Like any fund that invests in growth stocks, this one comes with some risks.

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Fund Opinions

The fund's Value Line Overall Rank, a measure of risk-adjusted performance and relative growth in fund returns, is 1 on a scale of 1 to 5, with 1 being the best and 5 the worst.

Value Line 2014-03-12

The fund's Value Line Growth Persistence rank, which awards funds that consistently outperform their broad universes, is 1 for one year, 3 for five years, and 3 for 10 years. Scores are on a 1 to 5 scale, with 1 being the best and 5 the worst.

Value Line 2014-03-12

The fund's Value Line Risk Rank, a measure of volatility, is 3 on a scale of 1 to 5, with 1 being the least volatile and 5 the most.

Value Line 2014-03-12

In the April 2010 edition of Morningstar's Fund Family Reports, John Coumarianos says, "Despite its three subpar years, we’re still behind this fund. The large-cap, slow-growth stocks that are its bread-and-butter appear as cheap as they have in years to many observers."

Morningstar 2010-06-02

Morningstar gives this fund a stewardship rating of A on a scale of A to F, saying, “This fund is supported by a fundholder-focused corporate culture and a fund board led by an independent chairman. Its fees also are reasonable. Overall, it’s a strong steward of capital.”

Morningstar

In the annual Lipper/Barron’s Fund Families Survey for 2009, American Funds ranks 31 out of 61 fund families surveyed.

Lipper

Morningstar gives this fund a stewardship rating of A on a scale of A to F, saying, “This fund is supported by a fundholder-focused corporate culture and a fund board led by an independent chairman. Its fees also are reasonable. Overall, it’s a strong steward of capital.”

Morningstar

In the annual Lipper/Barron’s Fund Families Survey for 2009, American Funds ranks 31 out of 61 fund families surveyed.

Lipper