Fund in Focus: American Century Strategic Allocation Aggressive

Feb. 19, 2004 — The American Century Stgc Alloc Aggressive/Inv (TWSAX) can invest in companies anywhere, but right now those abroad are particularly appealing to lead manager Jeff Tyler.

That group takes in emerging markets, too, because Tyler and his team reason that if the U.S. economy grows, developing countries will grow faster.

“We think the offshore markets are more fairly valued than the U.S.,” Tyler added in a recent interview. International stocks have also gotten a boost from gains in foreign currencies relative to the U.S. dollar, he noted.

The fund has 21% of its $717 million in total assets in foreign stocks, of which about 8% are in emerging markets. Tyler named Samsung Electronics Co. as a typical holding in the group. The Korean manufacturer of semiconductors and consumer electronics products has “good growth opportunities,” thanks to the revival of economies around the globe, he said.

Another example of the fund’s investments in the third world is Grupo Mexico SA de CV, a Mexican mining company Tyler sees benefitting as prices rise for certain metals.

Among emerging markets, Tyler said he likes Eastern Europe and Asia. Both are drawing manufacturing jobs from other parts of the world, in part because of their large, highly educated work forces, he said.

Over all, stocks now account for 80% of the fund’s assets, 2% more than their typical allocation, and 18% is in bonds, 2% less than normal, Tyler said. Cash holdings have held steady at 2%.

The fund’s mix of investments added up to a total return of 27.8% in 2003. That put it slightly behind its large-cap growth fund peers, which gained 28.1%, and the S&P 500, which rose 28.7%. Over the last few years, however, American Century Strategic Allocation Aggressive has topped both. It returned an average annualized 5.4%, versus a loss of 2.8% for similar funds, for the five years ended in December. The index slipped 0.6% during that period.

Because of its mix of assets, the American Century fund’s returns tend to be less volatile and sensitive to market moves than similar funds, serving as a cushion. That is illustrated by some statistics on the portfolio.

The American Century fund has an beta reading of 0.66, versus 1.09 for its peers. (Beta gauges how sensitive a fund is to changes in the market. A beta of 2.00 means the fund moved twice as much as the market.)

American Century Strategic Allocation Aggressive’s standard deviation reading for the three years ended in January is 12.45 , versus 21.25 for its peers. (Standard deviation is an historical measure of the variability of a fund’s returns. The lower the reading, the lower the fund’s volatility.)

At the end of 2003, the companies in Tyler’s portfolio sported a market capitalization of about $54 billion, on average. Mid-sized companies are also welcome in the portfolio, which blends growth stocks and undervalued equities.

The fund’s fixed-income securities are divided between high and low quality bonds, with the latter usually making up 3%-4% of its assets. Intermediate to long-term corporate bonds, mortgage-backed securities and Treasuries are all part of the mix.