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Is American Funds Growth Fund of America R6 (RGAGX) a Strong Mutual Fund Pick Right Now?

Zacks Equity Research

Having trouble finding a Large Cap Growth fund? Well, American Funds Growth Fund of America R6 (RGAGX) would not be a good potential starting point right now. RGAGX has a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify RGAGX in the Large Cap Growth category, an area rife with potential choices. Large Cap Growth funds invest in many large U.S. companies that are expected to grow much faster compared to other large-cap stocks. To be considered large-cap, companies must have a market cap over $10 billion.

History of Fund/Manager

American Funds is based in Los Angeles, CA, and is the manager of RGAGX. Since American Funds Growth Fund of America R6 made its debut in May of 2009, RGAGX has garnered more than $30.90 billion in assets. The fund is currently managed by a team of investment professionals.

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Performance

Of course, investors look for strong performance in funds. This fund in particular has delivered a 5-year annualized total return of 10.97%, and it sits in the middle third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 13.1%, which places it in the middle third during this time-frame.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. RGAGX's standard deviation over the past three years is 13.06% compared to the category average of 9.86%. Looking at the past 5 years, the fund's standard deviation is 12.63% compared to the category average of 9.99%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

It's always important to be aware of the downsides to any future investment, so one should not discount the risks that come with this segment.

Nevertheless, investors should also note that the fund has a 5-year beta of 1.01, which means it is hypothetically as volatile as the market at large. Because alpha represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which is the S&P 500 in this case, one should pay attention to this metric as well. RGAGX has generated a positive alpha over the past five years of 0.13, demonstrating that managers in this portfolio are skilled in picking securities that generate better-than-benchmark returns.

Holdings

Examining the equity holdings of a mutual fund is also a valuable exercise. This can show us how the manager is applying their stated methodology, as well as if there are any inherent biases in their approach. For this particular fund, the focus is principally on equities that are traded in the United States.

This fund is currently holding about 92.73% stock in stocks, which have an average market capitalization of $197.26 billion. The fund has the heaviest exposure to the following market sectors:

  1. Technology

  2. Finance

  3. Other

With turnover at about 42%, this fund is making fewer trades than the average comparable fund.

Expenses

Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, RGAGX is a no load fund. It has an expense ratio of 0.33% compared to the category average of 1.08%. So, RGAGX is actually cheaper than its peers from a cost perspective.

While the minimum initial investment for the product is $250, investors should also note that each subsequent investment needs to be at least $50.

Bottom Line

Overall, American Funds Growth Fund of America R6 ( RGAGX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, this fund looks like a somewhat weak choice for investors right now.

For additional information on this product, or to compare it to other mutual funds in the Large Cap Growth, make sure to go to www.zacks.com/funds/mutual-funds for additional information. Zacks provides a full suite of tools to help you analyze your portfolio - both funds and stocks - in the most efficient way possible.


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