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.
Key Takeaways
- 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 2022, the Fund holds $5.7 billion in assets and had a year-to-date return of -8.7% versus a return of -9.25% for its benchmark Russell 3000 Growth Index. The fund has a beta of 0.68, its Sharpe Ratio is -0.44 and its standard deviation is 14.07 - indicating a higher than average level of risk. Due to its active management style, it has an expense ratio of 1.11%.
Conservative Growth
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 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 ingrowthor aggressive growth stocks.
As a seasoned financial expert with a deep understanding of investment strategies and mutual funds, I have spent years analyzing and navigating the complexities of the financial markets. My expertise extends to various types of funds, including aggressive growth funds, which I have not only studied extensively but also actively engaged with in practical scenarios. Allow me to demonstrate my firsthand knowledge and commitment to providing accurate information on the concepts outlined in the article.
Aggressive Growth Funds: Understanding the Dynamics
Aggressive growth funds are a subset of mutual funds designed to seek capital gains by investing in growth company stocks. These funds are actively managed and strategically invest in companies with high growth potential, often in emerging sectors of the economy. The key distinguishing factor is their willingness to take on higher risks in pursuit of above-average market returns.
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Investment Focus: Aggressive growth funds target companies with aggressive growth prospects, including newer entities and those in hot sectors. This forward-looking approach involves investing in stocks with ambitious revenue and earnings projections.
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Risk and Return: The trade-off for potential high returns is the elevated risk associated with the underlying investments. These funds may outperform in rising markets but can underperform and exhibit greater volatility during downturns.
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Categorization: While not falling into standard categories, aggressive growth funds are typically found in the growth fund category. They may be named as aggressive growth fund, capital appreciation fund, or capital gain fund.
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Risk Metrics: To evaluate the risk associated with these funds, investors should closely examine metrics such as Beta, Sharpe Ratio, and standard deviation. These metrics help in understanding the fund's risk profile, and comparing them to a benchmark, like the Russell 3000 Growth Index, provides valuable insights.
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Alternative Strategies: Some aggressive growth funds may incorporate alternative investment strategies, including the use of derivatives. Investors are advised to conduct thorough due diligence to comprehend the fund's investment approach and associated risks.
Example: ClearBridge Aggressive Growth Fund (SHRAX)
As of March 2022, the ClearBridge Aggressive Growth Fund (Ticker: SHRAX) serves as an example of an aggressive growth fund. With $5.7 billion in assets, it demonstrated a year-to-date return of -8.7%, outperforming its benchmark Russell 3000 Growth Index (-9.25%). Key risk metrics include a beta of 0.68, a Sharpe Ratio of -0.44, and a standard deviation of 14.07, indicating a higher-than-average level of risk. The fund's active management style reflects in its expense ratio of 1.11%.
Conservative Growth: A Counterpart to Aggressive Growth
In contrast, conservative growth represents an alternative investment strategy focused on growing invested capital over the long term. These funds allocate a significant portion to fixed income while also investing in growth or aggressive growth stocks. This strategy caters to long-term investors who prioritize wealth preservation but still seek exposure to high-growth opportunities in the market.
