As an investor, I often look for funds that balance growth potential with disciplined risk management. The American Century Investments All Cap Growth Fund (Ticker: TWGTX) stands out as a compelling option for those seeking exposure to high-growth companies across market capitalizations. In this analysis, I dissect the fund’s strategy, historical performance, risk factors, and suitability for different investor profiles.
Table of Contents
Understanding the Fund’s Investment Strategy
The All Cap Growth Fund invests in companies of all sizes—small, mid, and large-cap—that exhibit strong earnings growth potential. The fund managers employ a bottom-up stock selection process, focusing on firms with:
- Revenue and Earnings Growth: Companies with above-average revenue and earnings expansion.
- Sustainable Competitive Advantages: Businesses with strong moats, such as proprietary technology or brand loyalty.
- Strong Management Teams: Leadership with a proven track record of execution.
The fund’s benchmark is the Russell 3000 Growth Index, but it takes an active approach to outperform.
Mathematical Underpinnings of Growth Investing
Growth investing hinges on the Gordon Growth Model, which estimates a stock’s intrinsic value based on future dividends growing at a constant rate:
P = \frac{D_1}{r - g}Where:
- P = Stock price
- D_1 = Expected dividend next year
- r = Required rate of return
- g = Growth rate of dividends
Since growth stocks often reinvest earnings rather than pay dividends, analysts may use free cash flow to equity (FCFE) instead:
FCFE = Net\ Income + Depreciation - Capital\ Expenditures - \Delta Working\ Capital - Debt\ RepaymentsPerformance Analysis: How Does the Fund Stack Up?
Let’s examine the fund’s performance against its benchmark and peers.
Table 1: Performance Comparison (5-Year Annualized Returns)
| Fund/Index | Return (%) | Volatility (%) | Sharpe Ratio |
|---|---|---|---|
| TWGTX (All Cap Growth) | 14.2 | 18.5 | 0.82 |
| Russell 3000 Growth | 13.8 | 17.2 | 0.78 |
| Large-Cap Growth Avg. | 12.9 | 16.8 | 0.74 |
Data as of Q2 2023. Source: Morningstar.
The fund has delivered consistent alpha, outperforming its benchmark by 40 basis points annually. The higher Sharpe ratio indicates better risk-adjusted returns.
Sector Allocation and Top Holdings
The fund maintains a diversified sector exposure, with heavy weightings in:
- Technology (35%) – Cloud computing, AI, and semiconductors.
- Healthcare (22%) – Biotech and medical devices.
- Consumer Discretionary (18%) – E-commerce and luxury goods.
Table 2: Top 5 Holdings (as of latest filing)
| Company | Weight (%) | Contribution to Return (YTD) |
|---|---|---|
| NVIDIA | 6.5 | +2.1% |
| Microsoft | 5.8 | +1.8% |
| Amazon | 4.7 | +1.2% |
| Tesla | 3.9 | +0.9% |
| Eli Lilly | 3.5 | +0.8% |
Risk Considerations: Is This Fund Right for You?
While the fund has strong upside potential, investors should be aware of:
- Market Capitalization Risks – Small-cap holdings (~15% of the portfolio) are more volatile.
- Sector Concentration – Heavy tech exposure means sensitivity to interest rate hikes.
- Expense Ratio (0.85%) – Slightly above the category average (0.78%).
Calculating Risk-Adjusted Performance
The Sortino Ratio improves upon the Sharpe ratio by focusing only on downside volatility:
Sortino\ Ratio = \frac{R_p - R_f}{\sigma_d}Where:
- R_p = Portfolio return
- R_f = Risk-free rate
- \sigma_d = Downside deviation
For TWGTX:
- R_p = 14.2\%
- R_f = 2.5\% (10-year Treasury yield)
- \sigma_d = 12.1\%
Thus:
Sortino\ Ratio = \frac{14.2 - 2.5}{12.1} = 0.97A ratio above 0.7 is generally good, indicating strong downside protection.
Tax Efficiency and Investor Fit
The fund distributes capital gains annually, which may trigger tax liabilities for taxable accounts. Investors in higher brackets may prefer tax-advantaged accounts like IRAs.
Who Should Invest?
- Long-term investors with a 7+ year horizon.
- Growth-oriented portfolios needing diversification across market caps.
- Those comfortable with volatility in exchange for higher returns.
Final Verdict: A Strong Contender in Growth Investing
The American Century All Cap Growth Fund offers a well-researched, actively managed approach to growth investing. While not without risks, its historical outperformance and disciplined stock selection make it a worthy consideration for growth-focused portfolios.
