When it comes to the best mutual funds, which was the top-performing U.S. diversified stock fund for 2020 in the big, popular American Century fund family? That honor goes to $2 billion Focused Dynamic Growth Fund (ACFSX).
ACFSX, the fund's oldest share class, was up a whopping 73.63% in 2020. The broad market in the form of the S&P 500 was up 18.40%. And the fund's large-cap rivals tracked by Morningstar Direct gained 35.87% on average. That's less than half as much as Focused Dynamic Growth.
And the fund isn't a mere flash in the pan. Its return through Dec. 31 topped 97% of its peer group over the past three and five years and 95% of them over the past 10 years.
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What were the equity pistons driving the fund's engine in 2020? Several were familiar megacap technology stocks. Those included Amazon.com, Facebook and Google-parent Alphabet.
Best Mutual Funds: Stocks This Fund Aims For
Other strong contributors for Focused Dynamic Growth, one of the best mutual funds, were innovators like Tesla and Square. Some holdings, including DocuSign, were big beneficiaries of key secular trends like the digitization of business activities.
In broad, philosophical terms, the fund aims for sky-high returns like those it achieved in 2020 by seeking stocks of companies with high sustainable growth rates. In that elite group, it wants what it considers the best of the best: companies in their early, rapid growth phase.
The fund managers — Keith Lee, Michael Li, Prabha Ram and Henry He — further narrow their portfolio by limiting their hunt to their best ideas. The portfolio holds just 35 to 45 stocks. As of Sept. 30, the fund held a lean 36 names.
Stock Traits Familiar To CAN SLIM Investors
What else makes this one of the best mutual funds? There's a lot about this portfolio that makes sense to a CAN SLIM investor, Investor's Business Daily's stock investing system created by IBD founder Bill O'Neil.
Three of the 36 holdings are recent members of the IBD Leaderboard, IBD's premium investment research platform. Those are Tesla, Nike and Chipotle Mexican Grill.
Chegg is a recent member of the IBD 50. That is IBD's flagship screen of leading growth stocks that show strong relative price strength and top-notch fundamentals.
Tesla, Chegg, and six additional holdings have earned IBD Composite Ratings of 90 or higher. A Composite Rating of 90 means that a stock is in the top 10% of all stocks on a number of technical and fundamental factors, including both price performance and earnings.
The best way to use the Composite Rating is to watch for stocks that have 90-plus scores and are forming bases or are in follow-on buy areas. That way, you spot the best-positioned stocks before they start big price runs. You can easily look up a stock's Composite Rating at IBD Stock Checkup.
SMR Rating Shows Whether A Company Is Well-Run
Twenty-six holdings have an IBD SMR Rating (which measures Sales, profit Margins and Return on equity) of A or B on a scale of A through E. Those stocks score in the top 40% of all stocks based on those gauges.
The SMR Rating helps show whether a company is well-run. Does it sell a hot product that spurs big gains in the top line? Is the company its industry's leader in profitability? Does management use resources to grow big? An A or B SMR grade means the answer is likely yes.
How Amazon Helped This Portfolio Remain One Of The Best Mutual Funds
To appreciate what makes this one of the best mutual funds, look under the hood of some key holdings. Top holding Amazon is an e-commerce and web services titan with an A SMR Rating. Share price has ranged from 3,000 to 3,500 since early July. Still, the stock has climbed 70% over the past 52 weeks.
Amazon has weathered the coronavirus pandemic. Earnings per share grew 7%, fell 29%, then grew 97% and 192% in the past four quarters.
Now? Shares are in a first-stage consolidation, finding support at their 50-day moving average, according to analysis by MarketSmith. And the stock's price was about 10% below a buy point on Jan. 7.
From Book Rentals To Online Platforms
And Chegg helped this portfolio enter the fraternity of best mutual funds. Chegg has an SMR Rating of A. The firm began as a textbook rental business. Now it provides digital textbooks and other education services via its network of online platforms, including Thinkful.
Chegg's business got a tailwind from the pandemic's work-from-home dynamic. Unable to attend classes in person, more students turned to Chegg for instruction.
Chegg shares zoomed 128% over the past 52 weeks. The stock broke out from a cup pattern on Dec. 21. It's still within the 5% buy zone of its 90.09 buy point.
Square Helps Small Businesses
Square stock, another top 10 holdings, also has an SMR Rating of A.
For merchants, Square makes credit-card readers that plug into mobile devices. Square Capital also offers loans to sellers.
The Square Cash app, a peer-to-peer money-transfer service, competes with PayPal's Venmo, Zelle and others.
Square shares soared 251% in the past 52 weeks. It recently was the No. 2 stock in IBD's Finance-Credit Card/Payment Processors industry group. Earnings per share are expected to slip 5% this fiscal year. But next year they're seen rising 50% to $1.14, according to MarketSmith.
Why This Is One Of The Best Mutual Funds
What makes this portfolio one of the best mutual funds? The fund is a 2020 IBD Best Mutual Funds Awards winner, having topped the S&P 500 in calendar 2019 as well as over the three, five and 10 years ended Dec. 31 on an average-annual-return basis.
Its 2020 outperformance vs. the S&P 500 means the fund will repeat as an IBD Best Mutual Funds Awards winner this year.
If you don't want to access the fund through a financial advisor, you can buy A-class shares (ACFDX) for a minimum initial investment of $2,500.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and active mutual fund managers who consistently outperform the market.
