Key Morningstar Metrics for American Funds Growth Fund of America
- Morningstar Medalist Rating: Bronze
- Process Pillar: Average
- People Pillar: Above Average
- Parent Pillar: High
American Funds Growth Fund of America AGTHX benefits from a veteran team and remains a decent option at the right price. A drop in the Morningstar Medalist Rating of several share classes isn’t attributable to reduced conviction in the fund’s People or Process ratings but instead reflects a change in the way Morningstar calculates the excess return opportunity for funds.
This capital appreciation fund looks to offer broad diversification, which can make it hard to place. All three of the firm’s equity subsidiaries contribute, divvying up allocations into smaller, independent sleeves under its characteristic multimanager approach. The managers look to diversify across sectors and can invest in overseas companies that derive notable revenue from the US. In the pursuit of growth, it stands out from its S&P 500 prospectus benchmark. Yet as of December 2024, the fund isn’t as top-heavy and chock-full of technology companies as the Russell 1000 Growth Index, and its roughly 8.8% stake in non-US stocks ranked in the highest quintile of large-growth Morningstar Category peers.
Its sprawling asset base of roughly USD 300 billion requires some maneuvering. Twelve named managers run individual sleeves. That is one of the largest management teams at the firm, and while it helps produce a diffuse portfolio of holdings, that can pose a headwind at times if not enough managers buy into a particular company. For example, after a positive meeting with management at the end of 2022, several managers at the firm bought Nvidia NVDA. Yet, only three of the 13 managers here owned it as of the first quarter of 2023, which weighed on results as Nvidia skyrocketed.
At the end of 2024, firm veteran and the fund’s lead principal investment officer Donald O’Neal stepped off the fund and retired from the firm. The fund remains in good hands as Anne-Marie Peterson stepped into the lead PIO role in September 2024; she has served as a subsidiary PIO for several years.
The team hasn’t led the fund to competitive results versus the growth index for several years running. During the past decade ended December 2024, the R6 share class’ 14.0% annualized gain lagged the growth index’s 16.8%, but it outpaced the S&P 500’s 13.1% and the category norm’s 13.2%. Some of the managers’ decisions during this time frame, including the portfolio’s underweighting in technology stocks and the market’s largest companies as well as an outsize stake in non-US stocks, have weighed on relative results.
Despite the fund’s challenges, its measured growth approach has worked well at times. It remains a reasonable option for patient investors at the right price.
Performance Highlights
The fund’s mix of traditional growth names, turnaround plays, and cyclical stocks has led to outperformance over long stretches. Since longest-serving manager J. Blair Frank joined the management team in November 2001, the R6 share class’ 10.7% annualized gain through December 2024 bested the S&P 500’s 9.8% (its broad-market prospectus benchmark) but lagged the Russell 1000 Growth Index’s 11.2% (the large-growth category benchmark).
The fund had an impressive run in the early to mid-2000s, when a smaller asset base gave it more flexibility to invest meaningfully in mid-cap stocks. Including value-oriented managers and international names worked in its favor then, too. Massive inflows followed, and the fund’s asset base topped USD 200 billion in October 2007. The fund held up relatively well in the 2007-09 credit crisis.
Yet the fund didn’t keep pace in the post-credit-crisis bull market. Since the March 9, 2009, bottom, the fund’s 16.7% annualized gain through December 2024 trailed the S&P 500’s 16.8% and the Russell 1000 Growth Index’s 19.2%. Its measured growth approach hasn’t worked, as the market has favored style-pure US growth names.
The emphasis on large firms with broad market exposure has given it resilience in many down markets relative to the large-growth index. That includes 2020’s coronavirus-driven bear market. However, it lost more than both indexes in 2022. The fund bounced back in 2023 and 2024, outperforming the category and S&P 500, but lagged the growth index as underweighting the giant-cap tech companies such as Nvidia hurt.