What Is a Capital Appreciation Fund?

Capital appreciation, also known as capital gains, refers to the increase of an investment's value. A capital appreciation fund is a fund that attempts to increase asset value primarily through investments in high-growth and value stocks. These funds may also be called aggressive growth funds, capital opportunity funds, or capital gain funds.

Understanding Capital Appreciation Funds

Capital appreciation funds are a good option for investors willing to take on some additional risks for the potential benefit of above-average market returns. They typically appeal to aggressive investors. Investment strategies can range broadly across the fund category; however, most funds are primarily invested in a mix of value and aggressive growth stocks. These funds are generally more moderate in their investment holdings than aggressive growth stock funds, investing for both long- and short-term gains with growth and value. These funds can be a good fit for moderate investors seeking equity market allocations since they usually invest from a broad market equity universe. They can also provide consistent exposure to the equity markets with steady capital appreciation over time. Therefore, they can be a good long-term core holding for a moderate-to-aggressive portion of an investment portfolio.

Key Takeaways

  • A capital appreciation fund is a fund that invests in assets, such as high-growth and value stocks, expected to aggressively appreciate.
  • Capital appreciation funds carry higher risks but typically offer higher-than-average returns.
  • Capital appreciation funds primarily invest in equities, such as growth and aggressive growth stocks.
  • These funds also balance the portfolio with value stocks and conservative investment options.

Capital Appreciation Fund Strategies

As the name suggests, capital appreciation funds seek to deliver value to shareholders by investing in companies they believe to have appreciating share prices. Therefore, they are heavily weighted toward equities. They often take aggressive bets on growth stocks while also balancing the portfolio with value stocks and a mix of conservative investments for capital preservation. With capital appreciation as the primary goal, these funds typically have a broad equity universe from which they invest. Most often, investments will target specific regions of the world, with numerous funds investing in US equities.

Risks of Capital Appreciation Funds

Capital appreciation funds may generally have higher risk characteristics than passive index investments and standard value stock funds. They offer the potential for above-average market returns with the benefit of diversification through active management. This gives investors exposure to a wide range of equity investments. These funds can have broad mandates and flexible investment objectives that may require added due diligence by investors.

Capital Appreciation Fund Example

Numerous capital appreciation funds are available across the investment market. BlackRock’s Capital Appreciation Fund offers management from one of the largest investment managers in the world.

BlackRock Capital Appreciation Fund

The BlackRock Capital Appreciation Fund invests in US growth stocks while seeking a balance of growth and risk. The Fund is benchmarked to the Russell 1000 Growth Index. As of June 30, 2021, it slightly outperformed the Russell 1000 Growth Index with a return of 13.1% YTD versus 12.99% YTD.