Average Annual Total Returns for Period Ended 6/30/2024
|
Class |
Qtr (%) |
1 Year (%) |
3 Year (%) |
5 Year (%) |
10 Year (%) |
Since Inception (%) |
Inception Date |
Gross Expense Ratio (%) |
|
Investor |
-4.57 |
9.24 |
0.98 |
9.97 |
8.34 |
10.75 |
7/31/98 |
1.09 |
|
I |
-4.47 |
9.55 |
1.19 |
10.20 |
8.57 |
11.22 |
10/26/98 |
0.89 |
|
R5 |
-4.46 |
9.54 |
1.19 |
10.22 |
8.57 |
8.45 |
4/10/17 |
0.89 |
|
R6 |
-4.52 |
9.71 |
1.34 |
10.37 |
8.73 |
9.33 |
7/26/13 |
0.74 |
|
Russell 2000 Value Index |
-3.64 |
10.90 |
-0.53 |
7.07 |
6.23 |
– |
– |
– |
|
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. Pre-inception differences in R5 Class and I Class performance are based on rounding. 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 record-keeping services to plan participants. Periods greater than one year have been annualized. |
Portfolio Review
U.S. stocks advanced. Stocks rose as investors hoped that a slowing economy and moderating inflation would prompt the Federal Reserve to cut interest rates.
Corporate earnings remain strong. Corporate earnings rose in the first quarter and are expected to be higher again in the second quarter. Large-cap growth stocks led U.S. equities higher, while value stocks across the market-capitalization spectrum fell, as did mid- and small-cap growth stocks.
Consumer discretionary lagged. Stock choices, especially in the hotels, restaurants and leisure and leisure products industries, hampered returns. Sector weakness resulted from slowing discretionary spending and in some cases from stock-specific factors, such as increased competition.
Financials underperformed. Stock selection in the sector hindered returns. An above-benchmark position in EVERTEC (EVTC) detracted as higher costs pressured margins. Regional banks also lagged as investors priced in fewer interest rate cuts than were originally expected for the second half of 2024.
Information technology contributed. Investment decisions in the sector helped lift relative returns. Coherent (COHR), a manufacturer of engineered materials and components, was a notable contributor. The company continued to benefit from momentum in artificial intelligence. The announcement of a new CEO was also well received by investors.
Key Contributors
Coherent. Shares of this leading manufacturer of engineered materials and components have benefited from demand for its optical transceivers used in artificial intelligence applications. Also supportive was the announcement of a new CEO whose decision to join Coherent was seen by investors as an endorsement of the company’s AI positioning.
The Brink’s Co. (BCO). This provider of cash logistics services performed well, with sales and profitability driven by a continued shift toward its faster-growth, higher-margin digital solutions.
Axis Capital Holdings (AXS). Shares of this specialty insurer and reinsurer contributed. Premiums written have continued to grow at high-single-digit rates while underwriting profitability remained robust, supplemented by higher investment income. An announced stock buyback also helped buoy shares.
Key Detractors
Dave & Buster’s Entertainment (PLAY). This restaurant operator was hurt by a pullback in casual dining by lower- and mid-tier consumers. However, we believe a remodeling program and an operational turnaround should drive improvements in store productivity and profitability.
Brunswick (BC). Although this leading manufacturer of marine products (boats, propulsion systems and electronics) underperformed amid uncertainty in the recreational marine industry, we continue to view Brunswick as a high-quality leader in the marine space.
EVERTEC. This payment processing business is focused primarily on the Puerto Rican and Latin American markets. Shares were sluggish as the company continued to digest the recent acquisition of Brazilian peer Sinqia. However, we believe the market has yet to recognize EVERTEC’s growth potential.
Notable Trades
Crescent Energy (CRGY). This exploration and production company, with assets in Texas and across the Rockies, has what we believe is deep, high-quality inventory. The company, which pays a fixed dividend, announced a plan to buy back shares.
Visteon (VC). We believe automotive supplier Visteon is well positioned in the electric vehicle business. We initiated a position in Visteon as we believed its stock was trading well below its fair value.
Cohu (COHU). Our decision to sell this maker of equipment and consumables used in the testing of semiconductor chips was driven by competitive concerns. We believe Cohu’s sales in China have declined recently because the company’s products lack sufficient technological barriers to entry, making them vulnerable to Chinese competition.
MKS Instruments (MKSI). This stock has performed well on improvement in the company’s semiconductor equipment and circuit board-related businesses. However, we sold the position in favor of stocks that we thought had better risk/reward profiles.
Portfolio Positioning
The portfolio seeks to invest in small-cap companies where we believe the valuation does not reflect the quality and normal earnings power of the company. Our process is based on individual security selection, but broad themes have emerged.
Overweight financials. We have been overweight in this sector relative to the benchmark, especially in banks and financial services companies (e.g., payment processors, holding companies and metals brokers), and have avoided mortgage real estate investment trusts (REITs) and consumer finance companies. Our analysis shows that there could be an improvement in banks’ net interest income and that fears of an extended period of tight lending conditions are likely overstated. Despite recent volatility, we remain constructive on what we believe are our higher-quality bank holdings.
Opportunities in industrials. We continue to like this sector and hold a significant overweight relative to the benchmark. We have identified what believe are higher-quality industrials (machinery, distribution, commercial services). Our research has indicated that many of our industrials holdings have been able to exert strong pricing power during the recent inflationary environment. We believe this pricing power, along with strong unit demand and prudent cost control efforts, has enabled many of our sector holdings to generate significant excess cash flow, which can be used to return cash to shareholders, buy back share and reduce debt.
More exposure to energy. After an extended period with an underweight in this sector relative to the benchmark, we now carry a moderate overweight. We added exposure to what we view as higher-quality companies in the oil field services and exploration and production segments. Our research indicates our oil field services holdings tend to have less exposure to oil and gas prices and/or have ties to well production rather than exploration (e.g., ChampionX provides chemical solutions designed to enhance well output). Our exploration and production holdings tend to be run by what we believe are conservative management teams with proven track records of disciplined fiscal management. We have sought to take advantage of recent market volatility in raw materials prices to add to our positions in companies that we believed were more attractively valued.
A continued underweight in health care. We remain significantly underweight in this sector relative to the benchmark as we believe valuations have not been attractive. A significant portion of our underweight is driven by our lack of exposure in biotechnology, pharmaceuticals and life sciences tools and services, which, as a group, offer few of the characteristics (strong cash flow, high returns, attractive valuations) we often look for in our investments.
Few opportunities in real estate. We remain significantly underweight in this sector relative to the benchmark because real estate companies tend to carry more debt than we prefer. In addition, we believe valuations for higher-quality REITs remain rich relative to other opportunities in the small-cap value space, leaving us with a more limited set of attractive risk/reward opportunities. That said, we have recently consolidated our REIT positioning into a smaller number of what we believe are higher-quality names in the hotel, industrial and health care segments.
Top 10 Holdings (%)
|
Old National Bancorp/IN (ONB) |
2.66 |
|
ChampionX Corp (CHX) |
2.52 |
|
Graphic Packaging Holding Co (GPK) |
2.42 |
| FNB Corp/PA (FNB) | 2.35 |
|
Timken Co/The (TKR) |
2.25 |
|
Axis Capital Holdings Ltd |
2.22 |
|
Magnolia Oil & Gas Corp (MGY) |
2.14 |
|
Brink’s Co/The |
2.13 |
|
EVERTEC Inc |
2.04 |
| Coherent Corp | 1.97 |
|
As of 6/30/2024 The 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. |
|
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 www.americancentury.com/performance. 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. 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. Historically, small- and/or mid-cap stocks have been more volatile than the stocks of larger, more established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than those of larger companies. The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000® Value Index measures the performance of those Russell 2000® companies with lower price-to-book ratios and lower forecasted growth values. Created by Frank Russell Company, it is not an investment product available for purchase. |
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
