Aggressive funds are mutual funds comprising stocks with high growth than the market average. These funds are actively managed by experts to achieve high returns on investments. Due to the fact, these growth funds carry high expense ratios as well.
These funds hold individual stocks with mid-cap or small-cap holding labels. These funds carry higher risks than the market average.
Deeper Definition
Aggressive growth funds seek high capital gains through investments in growth stocks. These funds carry a higher degree of risk measured through Beta. These funds take a leap forward from growth funds that rely on diversification in growth stocks. Aggressive funds do not necessarily rely on diversification, rather these funds aim to achieve higher returns on investments.
For investors, these funds can be riskier than growth funds. However, the higher risks are compensated for higher returns on investments.
How Does It Work?
Aggressive growth funds aim to invest in stocks with above market average growth indicators. Particularly, these funds look to invest heavily in stocks with high-performance forecasts. These holdings often comprise mid-cap and small-cap stocks as opposed to that with normal growth funds.
These funds look for stocks with higher revenue and growth forecasts. As such, these funds also carry higher risk as their strategy is based on forecasts. The forward-looking strategy takes a proactive approach by identifying potential growth performers.
Often, these funds rely on the growth prospects of the stocks. Some aggressive growth funds also seek diversification through derivatives. Despite that, these funds carry a higher risk than normal investments.
Aggressive growth funds tend to invest in young, aspiring, and newer companies that often shake the market with aggressive growth. Some of these companies may include a short-term economic boom in a particular sector. For instance, over the past decades, the Silicon Valley stocks such as Facebook, Amazon, Google, and Apple have consistently outperformed the market. All of these stocks are IT or tech-based and somewhat follow similar consumer trends.
Special Considerations with Aggressive Growth Funds
As aggressive growth funds take a riskier route to maximize capital gains, it’s important to understand the risk factor associated with these funds. One key metric to measure stock or fund risk is called market Beta.
Market Beta is the total market risk and is given a score of 1.0. Aggressive funds are riskier investments hence carry a higher Beta than 1.0. Any stock or Fund with a Beta score of less than 1.0 would be considered less risky than the market average.
Sharp Ratio and Standard Deviation are other important tools to measure a stock or fund’s risk profile. Importantly, these funds will have all three major risk indicators higher than market averages. Often, these funds will carry higher risk indicators than normal growth funds as well. Investors must carry higher risk tolerance to realize capital gains through investments in these funds.
Real-World Examples of Aggressive Growth Funds
Aggressive growth funds carry high risk, reward higher returns, and offer higher capital gains to investors. These actively managed funds also incur higher expense ratios.
Here are a few examples of top-performing aggressive growth funds.
- Fidelity Select Semiconductor Portfolio FSELX – with an average annualized return of 27.9% in the last three years.
- Fidelity Blue Chip Growth Fund FBGRX – The fund has annualized returns of 29.8% in the last three years.
- Franklin Dyna Tech Fund Class A FKDNX – The Aggressive growth fund has an annualized return of 30.3% in the last three years.
Advantages
Aggressive growth funds come with certain advantages for investors than investing in other financial securities.
- These funds are actively managed by experts and financial advisors.
- Investors can expect higher than market average returns on their investments in a shorter period as compared to other securities.
- These funds are often diversified through a curated list of stock selections.
- Investors can expect higher capital gains over the long run through investments in aggressive growth funds.
Disadvantages
Aggressive growth funds offer some risks and limitations to investors as well:
- These funds carry a higher degree of risk than normal growth funds.
- Capital gains incur higher tax liabilities for investors.
- Investors do not receive regular dividend payments.
- These are actively managed funds hence incur higher expense ratios.
- They are more prone to market volatility than normal growth or diversified portfolios.
Conclusion
Aggressive growth funds are actively managed funds through investments in high-growth stocks. These funds carry high risk and high rewards for investors. These funds look to invest in stocks with young and aspiring history within hot economic sectors.
