What is an Aggressive Growth Fund
An aggressive growth fund is a mutual fund that seeks capital gains by investing in aggressive growth stocks. Investments held in these funds are companies that demonstrate high growth potential. Aggressive growth funds seek to provide above average market returns however their underlying investments are often volatile causing high share price volatility.
BREAKING DOWN Aggressive Growth Fund
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. (See also: 5 Ways to Measure Mutual Fund Risk.)
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.
Aggressive Growth Fund Investing
The ClearBridge Aggressive Growth Fund is one example of an aggressive growth fund available for both retail and institutional investors. As of October 31, 2017, the Fund had a year to date return of 11.05% versus a return of 24.87% for the Russell 3000 Growth Index. The Fund has a beta of 1.05 when compared to the Russell 3000 Growth Index. Its Sharpe Ratio is 0.36 and its standard deviation is 12.99.