The $4.5 billion American Century Select Fund (TWCIX) is among the best mutual funds, and these days many of its investment opportunities are turbocharged by anticipation of a post-coronavirus pandemic economic rebound.
But it’s not because the fund focuses on macroeconomic trends. It does not, says Chris Krantz, one of the fund’s three managers along with lead manager Keith Lee and fellow co-manager Michael Li. “We are bottom-up stock pickers,” Krantz said. “Our core strength is not in predicting macro factors like interest rates and economic rebounds.”
It’s simply that those holdings and others have the fundamental traits this fund seeks in a buy. In addition, their respective business models stand to benefit from a reopening of the economy.
Best Mutual Funds: Why This Portfolio Bets On Alphabet
Take Google-parent Alphabet. When you think of Google, you likely think of its search engine. Search engine advertising will get a boost from a resurgence in travel. “What’s exciting about Google is that they have a significant portion of the search business in the travel space,” Krantz said. “So Google is positioned to benefit tremendously from a return to travel, whether it is for business or leisure. The expectation of a return to travel will make many advertisers look to advertising on Google.”
American Century Select Likes FAANG Stocks
American Century Select is not one of those share-price-be-damned, momentum oriented large-cap growth fund.
Sure, like many such top performing funds, the portfolio includes super-popular megacap technology oriented FAANG stocks — Facebook (FB), Amazon.com (AMZN), Apple (AAPL) and Alphabet, owner of Google, all within its top-10 holdings.
But unlike many funds that fatten up on go-go tech names regardless of cost, Select Fund is, well, selective, Krantz says. That’s something that helps make it one of the best mutual funds.
Stocks One Of The Best Mutual Funds Seeks
Part of its selectivity concerns its managers’ determination to diversify their bets. “We try to keep exposure to any one industry and to factors like momentum to a minimum,” Krantz said. When it comes to any single sector, for instance, the fund keeps its own sector weightings within 8 percentage points plus or minus of its Russell 1000 Growth Index benchmark.
And Select Fund also aims to avoid overpaying for any stock. “We are definitely valuation sensitive,” Krantz said.
Further, sticking to stocks that display four key traits helps it remain among the best mutual funds. “They must be companies with a sustainable competitive advantage,” Krantz said. They also must be capable of growing their earnings for five, 10 or even 15 years, he says. And they must have strong management.
“To make it into the portfolio, companies must meet one more criteria,” Krantz said. “The business must be going in a good direction. That means improving.”
What Tesla, PayPal, Microsoft And Adobe Have In Common
Just 51 names as of March 31 met the fund’s buy criteria.
Four of those happen to be recent members of the IBD Leaderboard: Alphabet, PayPal, Microsoft and Adobe.
Leaderboard is IBD’s curated list of leading stocks that stand out for their technical and fundamental prospects.
All together, at least seven holdings recently had IBD Composite Ratings of 90 or higher. That means each stock outperformed at least 90% of all stocks on a number of technical and fundamental factors, including price performance and earnings.
Generally, CAN SLIM investors consider only stocks with a score of 90 or higher on the 1-to-99 scale.
How Tractor Supply Uses Technology
Among holdings that are not high-profile tech names, Tractor Supply, is using technology to pump up its prospects. That could enable Tractor Supply to help Select stay among the best mutual funds.
New to the portfolio as of April, the chain sells clothing and footwear for yard work, animal supplies, tools, welding supplies, lawn and garden supplies and tractors as well as parts and accessories.
Share price is up about 42% since mid-November. Earnings per share grew 36% and 118% the past two quarters.
“The company has no scaled national competition,” Krantz said. “It is more than 10 times bigger than its nearest competitor. Customers tend to be fairly affluent people who own land and animals.”
Krantz added, “The company is investing in more digital capability, like improving curbside pickup. It’s investing in more outdoor space. We’ve seen strong results from Home Depot (HD) and Lowe’s (LOW) as people look to do more things outside their homes. They have a new CEO who started a little over a year ago, who worked at Home Depot and eBay (EBAY) who’s bringing a very forward looking digital presence to the company.”
What Makes Select One Of The Best Mutual Funds
Select Fund is a 2021 IBD Best Mutual Funds Awards winner. And it is a repeat recipient of the accolade.
It outperformed the S&P 500 in 2020 and in the three, five and 10 years ended Dec. 3. So far this young year it is trailing the bogey, 2.26% vs. 8.74%, going into Thursday.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and active mutual fund managers who consistently outperform the market.
YOU MAY ALSO LIKE: