Many retirement investors use mutual funds to save toward their long-term financial goals, and mutual fund giant American Funds has been one of the most popular fund families for decades. The American Funds Growth Fund of America (NASDAQMUTFUND:AGTHX) is a favorite among retirement savers, boasting more than $142 billion in assets as of May 31 and more than 3.8 million shareholder accounts. With its goal of growing capital by investing wherever the best growth opportunities are, Growth Fund of America provides diversification and has a history of strong returns. However, the fund also often comes with added costs that can eat into your final returns.
Growth Fund of America's performance
The Growth Fund of America has produced impressive long-term returns for retirement investors. Over the past 15 years, the fund has produced an average annual return of 6.5%. That's more than a percentage point higher than the typical large-cap growth fund, and it has also beaten the S&P 500 index as well. The fund's 15-year performance puts it among the top 15% of funds in its category, and Growth Fund of America is also in the top quarter for performance over the past year and five-year period.
As a growth fund, Growth Fund of America doesn't focus on income-producing investments. As a result, its distribution yield is relatively low even for a stock fund, at just 0.6%. However, the concentration on non-income-producing securities has some tax advantages for the Growth Fund of America, as it reduces the amount of taxable income that gets passed through to investors who hold their shares in regular taxable accounts.
Fees and expenses at Growth Fund of America
Growth Fund of America's annual expenses depend on which share class you own. The Class A shares available to most investors carry an expense ratio of 0.65%, which is just over half the average among large-cap growth funds. However, that ratio includes a 12b-1 fee to cover marketing and sales-related costs.
More importantly, like many American Funds offerings, Growth Fund of America charges a sales load of up to 5.75% when you purchase shares. You can reduce the amount of the load by investing more money, with discounts available at the $25,000 level and above. Other classes of shares have different characteristics, and the retirement class options that are available to 401(k) plans and other institutional retirement funds don't charge a sales load and have expenses of as little as 0.33%.
What Growth Fund of America owns
Growth Fund of America invests almost exclusively in stocks, and more than 80% of its exposure is in U.S. companies. About 10% of the portfolio is currently invested in international stocks, with an 8% cash holding as of March 2016.
Among its holdings, Growth Fund of America concentrates on the information technology sector, holding nearly a quarter of its assets in tech stocks. Consumer discretionary and healthcare stocks round out the top three sectors, and combined, those three areas make up almost 60% of the fund's total holdings. The biggest individual stock holding by far is Amazon.com, which composes almost 7% of the fund's assets.
Who manages Growth Fund of America?
Growth Fund of America has a large team of managers, many of whom have extensive histories with the fund. Donald O'Neal has been with Growth Fund of America for 22 years, and Michael Kerr and Blair Frank have 17 and 14 years of experience at the fund respectively. The fund's advisor is Capital Research and Management Company, of which all three of its longest-tenured managers are part. A full team of a dozen individual managers helps round out the fund's offerings.
Is Growth Fund of America a smart buy right now?
The biggest obstacle for investors in Growth Fund of America is justifying the sales load. Losing up to $575 up front for every $10,000 you invest to sales charges that go to the broker selling you the fund is a big hit. The fund has done a good job of outperforming its peers by a wide enough margin to compensate for the load, and its annual expenses are low for an actively managed stock mutual fund.
If you can get access to Growth Fund of America on a no-load basis through your 401(k) plan, then the stock fund is a good choice for retirement investors. If you have to buy regular shares and pay a load, however, even the strong performance that Growth Fund of America has delivered over the years isn't enough to make the fund a clear-cut choice for long-term retirement investors.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.