What Is an Aggressive Growth Fund?
An aggressive growth fund is a mutual fund that seeks capital gains by investing in the shares of growth company stocks. Investments held in these funds are companies that demonstrate high growth potential, but also carry greater risk. As such, aggressive growth funds seek to provide above average market returns however their underlying investments are often volatile causing high share price volatility.
- An aggressive growth fund invests in companies that have high growth potential, including newer companies and those in hot sectors of the economy.
- As a result, these funds are actively managed to achieve above-average returns when markets are rising.
- These stocks, however, are also quite a bit riskier than other stocks and so these funds may underperform in down markets and experience greater volatility overall.
Understanding Aggressive Growth Funds
Aggressive growth funds are identified in the market as offering above average returns for investors willing to take some additional investment risk. They are expected to outperform standard growth funds by investing more heavily in companies they identify with aggressive growth prospects. Aggressive growth funds invest in growth stocks with relatively more aggressive projections for revenue and earnings than the standard growth stock universe. Because aggressive growth stock funds are investing based on forward-looking assumptions and multiple growth phases, they can have higher comparable risk. These funds typically do not fall into a standard category grouping reported by mutual fund research providers. They will typically be found in the growth fund category with fund names such as: aggressive growth fund, capital appreciation fund or capital gain fund. Their main focus is to invest for superior capital gains.
Since these funds typically are associated with high risk and high return it is important for investors to closely examine risk metrics of the funds. Beta, Sharpe Ratio and standard deviation are three risk metrics that are often reported by a fund company to help investors understand the fund’s risks. Comparing the risk metrics to a benchmark is typically best when seeking to understand fund risks. The Russell 3000 Growth Index is a good market index benchmark for investors when considering aggressive growth funds.
Aggressive growth funds offer some of the highest return potential in the equity markets, also with some of the highest risks. Some aggressive growth funds may integrate alternative investing strategies that utilize derivatives. Investors should do thorough due diligence on these funds to understand their investments and investment strategies.
Example of an Aggressive Growth Fund
The ClearBridge Aggressive Growth Fund (Ticker: SHRAX) is one example of an aggressive growth fund available for both retail and institutional investors. As of March 2020, the Fund holds $6.8 billion in assets and had a year to date return of -3.35% versus a return of -3/72% forits benchmark Russell 3000 Growth Index. The Fund has a beta of 1.11, its Sharpe Ratio is 0.17 and its standard deviation is 15.55 - indicating a higher than average level of risk. Due to its active management style, it has an expense ratio of 1.12%.
In contrast to aggressive growth, conservative growth is an alternative investment strategy that aims to grow invested capital over the long term. These funds typically target long-term investors who place a high importance on wealth preservation but would also like to take advantage of some of the market’s high growth opportunities. Conservative growth funds usually allocate a high percentage of the fund to fixed income while investing the remaining allocation in growth or aggressive growth stocks.