Average Annual Total Returns for Period Ended 6/30/2024
Data presented reflects past performance. Past performance is no guarantee of future results. Current performance may be higher or lower than the performance shown. To obtain performance data current to the most recent month end, please visit Mutual Fund & ETF Products | American Century Investments®. Investment return and share value will fluctuate, and redemption value may be more or less than original cost. Data assumes reinvestment of dividends and capital gains. Returns for periods less than one year are not annualized. For information about other share classes available, please consult the prospectus. There is no guarantee that the investment objectives will be met. Dividends and yields represent past performance and there is no guarantee that they will continue to be paid. Historical performance for the R5 Class prior to its inception is based on the performance of I Class shares, which have the same expenses as the R5 Class. Expense ratio is as of the fund’s current prospectus. The I Class minimum investment amount is $5 million ($3 million for endowments and foundations) per fund. The R5 Share Class is available only to participants in group employer-sponsored retirement plans where a financial intermediary provides recordkeeping services to plan participants. The gross expense ratio is the fund’s total annual operating costs, expressed as a percentage of the fund’s average net assets for a given time period. It is gross of any fee waivers or expense reimbursement. The net expense ratio is the expense ratio after the application of any waivers or reimbursement. This is the actual ratio that investors paid during the fund’s most recent fiscal year. Please see the prospectus for more information. Extraordinary performance is attributable in part to unusually favorable market conditions and may not be repeated or consistently achieved in the future. The advisor has agreed to waive a portion of the fund’s management fee such that the management fee does not exceed 0.91% for Investor, A, C and R Classes, 0.71% for I and R5 Classes, and 0.56% for Y and R6 Classes. The advisor expects this waiver arrangement to continue until February 28, 2025, and cannot terminate it prior to such date without the approval of the Board of Directors. Periods greater than one year have been annualized. |
Strategy Highlights
Growth philosophy defined by business improvement. We seek to invest in larger U.S. Long-term capital growth by investing primarily companies with improving businesses as opposed to absolute levels of growth. We believe these companies add value over time through increasing earnings growth and the ability to command a higher valuation relative to peers.
Returns driven by stock selection. We construct our portfolio to intentionally acquire stock-specific risk aligned with our research while minimizing relative exposures related to sectors and common factor risks, such as market-cap size, volatility and momentum.
Team portfolio management by dedicated sector specialists. All members of the team conduct research and participate in portfolio decisions. This provides advantages of efficiency, alignment and accountability.
Portfolio Review
Top 10 holdings (%)
Microsoft Corp (MSFT) |
13.81 |
Nvidia Corp (NVDA) |
10.64 |
Apple Inc (AAPL) |
9.23 |
Alphabet Inc (GOOG,GOOGL) |
8.11 |
Amazon.com Inc (AMZN) |
5.95 |
Meta Platforms Inc (META) |
4.29 |
Visa Inc (V) |
3.55 |
Eli Lilly & Co (LLY) |
3.18 |
AbbVie Inc (ABBV) |
1.51 |
Tesla Inc (TSLA) |
1.50 |
As of 6/30/2024The holdings listed should not be considered recommendations to purchase or sell a particular security. Equity holdings are grouped to include common shares, depository receipts, rights and warrants issued by the same company. Fund holdings subject to change. |
Stocks posted gains. Broad U.S. large-cap stock indices moved higher, adding to the strong performance of the first half of 2024. As has been the case all year, performance was largely driven by the stocks of companies currently benefiting from artificial intelligence and those expected to benefit as AI is incorporated into their businesses.
Large-cap growth stocks led performance. Stock gains were due to the outperformance of large-cap stocks, especially select large-cap growth stocks that benefited from optimism about AI. Value stocks struggled across the market-capitalization spectrum, as did mid- and small-cap growth stocks. As a result, outside of large-cap growth and large cap core, seven of the nine equity style boxes declined.
Information technology hampered performance. Stock selection in the sector was negative compared with the benchmark, especially in the IT services industry. Database software provider MongoDB (MDB) lowered guidance as it fights economic headwinds that are slowing growth. Underweights to Apple (AAPL) and Broadcom (AVGO) relative to the benchmark were other significant detractors.
Consumer staples detracted. Sector stock choices hampered performance compared with the benchmark. In consumer staples distribution and retail, Target (TGT) and Sysco (SYY) were significant detractors.
Consumer discretionary benefited performance. Stock selection in the sector was helpful compared with the benchmark. Among specialty retail stocks, not owning Lowe’s Cos. (LOW) and underweighting The Home Depot (HD) relative to the benchmark aided performance as investors have come to terms with slower and potentially more drawn-out interest rate cuts as the Federal Reserve wrestles with its policy choices.
Key Contributors
Mastercard (MA). In general, payments stocks have not kept up with the broader market as these companies will see limited benefit from artificial intelligence in the near term. Exposure to lagging overseas markets also hurt. Not owning this lagging stock benefited performance compared with the benchmark.
Alphabet. Google’s parent company reported strong results with earnings, revenues and margins all higher, driven by strength across all major business segments. Management attributed results to Alphabet’s investment in AI capabilities. Alphabet also announced a large share repurchase program.
CrowdStrike Holdings (CRWD). Information technology security spending continues to be more resilient to macroeconomic headwinds than other areas of software. CrowdStrike is doing a good job of expanding into product categories adjacent to its core business. The stock was also added to the S&P 500 Index.
Key Detractors
Visa (V). In general, payments stocks, including Visa, have not kept up with the broader market as these companies will see limited benefit from artificial intelligence in the near term. Exposure to lagging overseas markets also hurt near-term financial results.
Apple. The consumer electronics company outperformed as Apple has been increasingly seen as a leader in AI and not a follower. With some AI features available on the next iPhone, expectations are for a more robust iPhone 16 cycle. Our underweight allocation detracted.
Broadcom. The semiconductor company increased guidance for its AI business, with strong demand in custom AI accelerators and networking products, and management continued to execute well on profitability. We had some exposure to Broadcom but less than the index, which hampered performance.
Notable Trades
Pinterest (PINS). We established a position in this image-browsing social media company. Its upgraded advertising platform has resulted in new products and new partnerships with Amazon and Alphabet, which should improve advertising relevance.
SAIA. We initiated a position in the less-than-truckload freight carrier as we believe the company is executing well on its growth strategy and should be able to take market share and improve operating margins in an industry with high barriers to entry, rational competition and pricing power.
Starbucks (SBUX). Sales trends worsened materially without clarity or confidence in management’s ability to remedy the situation. We believe pricing and the cumulative effect of inflation remain significant headwinds. We, therefore, chose to exit the position.
Lockheed Martin (LMT). We exited our position in defense company Lockheed to fund better ideas with more upside potential within the industrials sector.
Positioning for the Future
Our process uses analysis aimed at identifying large-cap companies producing attractive, sustainable earnings growth. We seek to reduce unintended risks and align the portfolio with company-specific risks that we believe will be rewarded over time. As a result of this approach, our sector and industry allocations reflect where we are finding opportunities at a given time.
There were few major sector weight changes. FTSE Russell rebalanced its indices at the end of the period, which changed some of our sector allocations. The changes to the benchmark showed a greater bias toward momentum, resulting in the information technology sector weight going up the most, followed by communication services. Several sectors saw their weights decrease noticeably. These include consumer discretionary, financials, industrials and health care.
We see opportunities in information technology. The emergence of generative artificial intelligence as a theme has sparked increased interest in technology industries such as semiconductors and software. While generative AI tools are not broadly deployed today, companies are preparing for this eventuality by investing in solutions that help them better capture and organize data. Simultaneously, the large public cloud providers are investing significant resources to grow their data center capacity as AI will need both increased data storage and advanced computational capabilities.
Our health care positioning is highly bifurcated. The sector represents our largest underweight compared with the new index weightings, but that doesn’t tell the whole story. Pharmaceuticals is one of our largest industry overweights, led by the big obesity drug makers. However, we have very little exposure to health care providers and services and life science tools and services companies.
We see fewer opportunities in consumer discretionary. While U.S. consumers have remained strong, inflation and higher interest rates could reduce spending power for discretionary purchases. Recent data show the labor market weakening, and economists generally agree that excess consumer savings accumulated during the pandemic have been exhausted.
The impact of transformational technology isn’t limited to one sector. For example, in health care, computational biology is enabling drug discovery that wouldn’t have been possible a few years ago. Advances in generative AI technology will likely impact many sectors as companies seek ways to utilize the technology to drive efficiency. Autonomous vehicles will become a reality with 5G networks, and payment networks and digitization are driving online purchases and home delivery.
You should consider the fund’s investment objectives, risks, and charges and expenses carefully before you invest. The fund’s prospectus or summary prospectus, which can be obtained at American Century Investments® Home, contains this and other information about the fund, and should be read carefully before investing. The opinions expressed are those of the portfolio investment team and are no guarantee of the future performance of any American Century Investments portfolio. Statements regarding specific holdings represent personal views and compensation has not been received in connection with such views. This information is for an educational purpose only and is not intended to serve as investment advice. The information is not intended as a personalized recommendation or fiduciary advice and should not be relied upon for investment, accounting, legal or tax advice. The fund is generally closed to new investors other than those who (i) invest directly with American Century (where American Century is listed as the dealer of record); (ii) invest through certain financial intermediaries selected by American Century; or (iii) otherwise qualify for an exemption under American Century’s closed fund policy. The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index (the 3,000 largest publicly traded U.S. companies based on total market capitalization). The Russell 1000® Growth Index measures the performance of those Russell 1000® companies with higher price-to-book ratios and higher forecasted growth values. Created by Frank Russell Company, indices are not investment products available for purchase. IN-FLY-92062American Century Investments Services, Inc., Distributor©2024 American Century Proprietary Holdings, Inc. All rights reserved. Non-FDIC Insured May Lose Value No Bank Guarantee |
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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