Please ensure Javascript is enabled for purposes of website accessibility

Fund Guide: American Funds Growth Fund of America

By Dan Caplinger - Updated Aug 22, 2018 at 12:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The American Funds Growth Fund of America (AGTHX) has a strong track record, but is it right for your retirement?

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 (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.

A holographic bar chart depicting steady growth hovers above a tablet computer

Image source: Getty Images.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Growth Fund of America Stock Quote
The Growth Fund of America
AGTHX

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
349%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.