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 |
-3.00 |
8.89 |
5.55 |
9.10 |
7.65 |
9.41 |
9/1/93 |
1.02 |
|
I |
-3.06 |
9.08 |
5.74 |
9.32 |
7.86 |
8.02 |
7/31/97 |
0.82 |
|
R5 |
-2.94 |
9.08 |
5.75 |
9.32 |
7.86 |
7.98 |
4/10/17 |
0.82 |
|
R6 |
-3.03 |
9.10 |
5.86 |
9.48 |
8.02 |
8.81 |
7/26/13 |
0.67 |
|
Russell 1000 Value Index |
-2.17 |
13.06 |
5.52 |
9.01 |
8.23 |
– |
– |
– |
|
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. 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. Periods greater than one year have been annualized. |
Portfolio Review
U.S. stocks advanced. During the quarter, broad U.S. equity markets rose amid moderating inflation, strong corporate earnings growth and weakening employment data. While the Federal Reserve kept interest rates steady, policymakers suggested they may cut rates once by year-end.
Large-cap growth stocks led U.S. equities higher. While large-cap growth stocks delivered notable gains, value stocks declined across the market-capitalization spectrum. Mid- and small-cap growth stocks also fell.
Health care detracted. Choices of investments in the health care sector, where the portfolio is overweight relative to the benchmark, hampered performance. Investors appeared to have concerns about slowing health care utilization for certain names in the portfolio, including medical device maker Zimmer Biomet Holdings, which weighed on relative results.
Consumer staples weighed on results. Consumer staples dampened results as concerns over pricing have weighed on the sector. Security selection dampened performance, particularly in the consumer staples distribution and retail industry. The portfolio’s lack of exposure to Walmart hurt relative performance after the big-box retailer posted strong earnings during the period.
Real estate was an area of strength. Stock selection in the real estate sector gave performance a lift. The portfolio is broadly underweight in the sector relative to the benchmark but overweight in retail real estate investment trusts (REITs), where certain names contributed to performance. Also, a lack of exposure to other REITs, including industrial REITs, helped results.
Key Contributors
Unilever (UL). Shares of this consumer goods company rose after Unilever released quarterly results that exceeded expectations. The company has increased its product sales volume, which we think may have helped investors gain comfort around the sustainability of Unilever’s sales growth.
Qualcomm (QCOM). This information technology company delivered a strong quarter. Unlike other semiconductor companies, Qualcomm’s automotive business continued to deliver solid growth. We believe Qualcomm has been positioned to benefit from a strong automotive pipeline and potential recovery in its Internet of Things business.
Roche Holding (OTCQX:RHHBF). Shares of this Switzerland-based pharmaceutical company rallied on news of encouraging clinical trial results for its GLP-1 obesity treatment.
Key Detractors
Zimmer Biomet Holdings (ZBH). Even though this medical device company posted better-than- expected earnings, its shares declined on investors’ concerns about health care utilization slowing in the future. We believe Zimmer Biomet’s valuation remains attractive, and we expect stable demand and improved profitability.
CVS Health (CVS). Shares of this health care company dropped following a poor earnings report and reduced guidance due to higher medical costs within the Medicare portion of its insurance business. However, we think CVS should be able to improve its Medicare profit margins and that the stock’s risk/reward profile remains attractive.
Walmart (WMT). The portfolio’s lack of exposure to this retailer dragged on relative performance. Walmart’s favorable quarterly earnings report and upbeat outlook for its 2025 fiscal year drove the continuation of a strong run in the stock that has pushed its valuation to a multi-decade high.
Notable Trades
Xcel Energy (XEL). We initiated a position in this regulated electric and natural gas utility because we believe it was trading at a discount to its fair value due to concerns about potential liability stemming from wildfires in Colorado and Texas. In our view, these concerns have been overblown as we think insurance may cover all or most of the liability.
Commerce Bancshares (CBSH). We initiated a position in this regional bank. In our view, this bank is high quality and has above-average cash levels, diversified fee income streams and a stellar management track record.
ConocoPhillips (COP). During the quarter, we exited our position in this oil production company to fund other positions that we believed offered more compelling risk/reward profiles.
General Electric (GE). Shares of this industrial conglomerate outperformed our expectations as its spin-off of GE Vernova approached, and we exited our position on strength in the shares. We invested the proceeds in other positions that we believed were more attractive.
Portfolio Positioning
The portfolio seeks to invest in 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.
Value stocks may offer resilience. Investors continue to face macroeconomic and geopolitical risks, and we believe interest rates are likely to remain relatively elevated, even if inflation continues to cool off. Against this backdrop, we think value-oriented stocks should produce more predictable earnings and carry less risk than their growth counterparts.
Opportunities in health care. Our research has led us to several health care stocks that we think offer attractive risk/reward profiles and possess compelling valuations. We believe health care is less sensitive to the cyclical effects of the economy than other sectors because the economy’s performance tends to have less impact on demand. We believe health care utilization rates should continue to normalize after the lagging effects of the COVID-19 pandemic kept patients from seeking medical procedures and devices.
Navigating the financials sector. We are now overweight in the financials sector relative to the benchmark. Regional banks have faced ongoing headwinds to earnings from rising deposit costs and increased regulatory requirements. Still, we believe we have identified promising opportunities in the sector amid the negative sentiment and historically low valuations currently placed on this industry and the prospect of an improving interest rate environment later in the year. We continue to focus on finding what we believe are attractively valued equities in the financials sector that can generate consistent returns from diverse sources while also maintaining strong financial positions with less risk.
We continue to see value in energy. We continue to pursue opportunities in diversified energy companies that we view as higher quality, with solid assets, strong balance sheets and management teams focused on returns on capital. We believe many companies in the energy sector have improved how they allocate capital by being more disciplined in capital spending and acquisitions while returning more capital to shareholders through share buybacks and dividends.
Underweight in industrials. While we have identified several stocks in the industrials sector that we believe offer attractive valuations, we remain underweight in the sector relative to the benchmark.
Top 10 Holdings (%)
|
Berkshire Hathaway Inc (BRK.A) |
3.96 |
|
Medtronic PLC (MDT) |
3.04 |
|
Johnson & Johnson (JNJ) |
3.03 |
|
Exxon Mobil Corp (XOM) |
2.85 |
|
JPMorgan Chase & Co (JPM) |
2.81 |
|
Cisco Systems Inc/Delaware (CSCO) |
2.43 |
|
US Bancorp (USB) |
2.28 |
|
Bank of America Corp (BAC) |
2.26 |
|
Verizon Communications Inc (VZ) |
2.21 |
| Zimmer Biomet Holdings Inc (ZBH) | 1.85 |
|
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. 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® Value Index measures the performance of those Russell 1000® companies with lower price-to-book ratios and lower forecasted growth values. Created by Frank Russell Company, indices are not investment products available for purchase. |
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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