Its Growth Fund of America C (GFACX) has become a perennial favorite for investors. Overall, it provides a great choice for investors seeking a very high quality mutual fund. This fund is a good choice for beginners wanting to invest primarily in U.S. equities, with about 81% of the fund’s assets in stocks. With a minimum initial investment of $250 and subsequent investments starting at $50, it presents a relatively accessible choice for those looking to diversify their portfolio.
After only three years of existence, GFACX has a short but stellar track record, with a three-year annualized total return of 27.36%. In its first three years, the fund outperformed the top benchmark, demonstrating a remarkable return. Yet, its standard deviation is at 14.67%, well above the category average of 11.45%. GFACX has been more volatile than most of its category peers. Yet this accomplishment deserves probing questions as to what its risk and reward potential is in today’s market climate.
Performance Metrics and Volatility
Looking at the performance of GFACX over multiple time periods shows some fascinating aspects of its potential exposure to volatility and overall risk profile. Strong returns with a 10.96% annualized total return of the fund’s over five years, this fund has performed very well. During this time frame, GFACX’s standard deviation shoots up to 17.46%, easily topping the category average of 12.96%. This increased amount means that GFACX has had a higher standard deviation of price changes than other funds in the same asset class.
GFACX is placed in the middle third compared to the other funds in its category. This is true for the three-year as well as the five-year annualized total returns. So far, it has done pretty well. This placement shows that it has raised the flag that other dollars within its category have done better over these time periods. Investors should carefully compare the potential returns of GFACX with overall investment objectives and risk tolerance.
Additionally, with an annualized turnover rate of approximately 32%, GFACX reflects a healthy rate of trading activity. The higher the turnover, the more volatile it is. Managers actively hedge, speculate or adjust their holdings to those risks and opportunities in response to changing market conditions. This is an important factor for any future investors to look at, as management fees can greatly affect the fund’s returns and overall fund performance.
Investment Strategy and Holdings
The underlying index GFACX invests at least 80% of its assets in large-cap U.S. equities with an average market capitalization of about $587.03 billion. Targeting only the big boys provides an anchor of stability with their sheer market dominance. Doing this is limiting your growth opportunities relative to smaller or mid-cap investments.
The fund’s strategy is further complemented by a growth-oriented investment philosophy, which seeks to identify companies that the earnings growth potential. By keeping most of its assets in equities, GFACX aims to take advantage of market gains. The volatility that comes with it needs to be sharply considered by investors seeking more predictability in their portfolios.
Perhaps of equal interest is the way that GFACX has positioned itself within its category. The middle third placement tells you that this is likely NOT the best of the best. Even then it continues to provide better returns than its peers. For those investors overall looking for growth but with less risk than the most aggressive offerings, GFACX, even with its volatility, could be an attractive offering.