Definition and Examples
How It Works
What It Means for Individual Investors
Types of Aggressive Growth Funds
Definition and Examples
An aggressive growth fund is a mutual fund aimed at achieving high capital gains potential through growth stocks. The increased risk associated with other strategies is offset by higher long-term returns.
How It Works
Generally, aggressive growth funds operate in the same way as any other mutual fund. Fund managers determine the investments and how to allocate them to best reflect the fund’s intent. Since the aggressive growth fund is designed to grow at a faster rate than a benchmark or other measure, the fund management chooses investments they believe will grow at the required rate.
What It Means for Individual Investors
Investors in aggressive growth funds can expect to see higher volatility than those using a general growth strategy; this is measured by the fund’s beta coefficient. The beta coefficient indicates how the fund reacts to fluctuations in an index such as the S&P 500 or the broader market. For example, an aggressive growth fund is typically compared to another benchmark assigned a beta of 1.0. This means that the aggressive growth fund will have a beta greater than 1.0, while a regular growth fund might have a value less than 1.0, such as 0.85. A beta value of 0.85 indicates that the fund is expected to return 15% less than its benchmark; whereas a beta value of 1.1 would suggest that fund managers expect it to outperform (or underperform) its benchmark by 10%.
Types of Aggressive Growth Funds
Many mutual equity funds for aggressive growth include terms like “aggressive growth,” “capital appreciation,” “capital opportunity,” or “strategic equity” in their names. To find an aggressive growth fund, you should do some research. In addition to the beta, you can look at the Sharpe ratio and the fund’s standard deviation to understand the associated risks.
One way to find a target mutual fund is to visit a mutual fund research website. Look for “aggressive growth” under the investment objective. You can also search for the stated objective in the mutual fund’s prospectus, or you can go directly to the mutual fund’s website and find it there.
It is important to have significant overlap among funds, meaning that many funds have the same investments. For this reason, if your portfolio already contains a growth fund, you may not need to add an “aggressive” growth fund.
Aggressive growth funds often invest in new companies, or they may invest in companies in the hotter economic markets. Examples of some aggressive growth mutual funds include:
- Fidelity Select Technology: FSPTX has a three-year beta (compared to S&P 500) of 1.13. The fund primarily invests in companies specializing in software and semiconductor chips.
- Vanguard Strategic Equity: VSEQX has a three-year beta (compared to Dow Jones Total Stock Market Index) of 1.12, and 1.02 (compared to MSCI US Small + Mid Cap 2200 Index). The fund primarily invests in financial services, information technology, industrials, consumer goods, and healthcare.
Source: https://www.thebalancemoney.com/what-is-aggressive-growth-2466766
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