What Is an Aggressive Growth Mutual Fund?
Definition & Examples of Aggressive Growth Mutual Funds
Aggressive growth is a mutual fund investment objective that seeks high capital gain potential through growth stocks. The high risk relative to other strategies is offset by higher potential returns in the long run.
What Is Aggressive Growth?
Aggressive growth is associated with a strategy or style of investing that comes with higher market risk compared to a diversified investing approach. As it pertains to the stock market in general, higher risk investments have the potential for greater returns in the long term.
A growth stock is an equity investment in a company that is expected to grow at a faster rate in relation to the overall stock market. Aggressive growth can be considered an intensified, greater growth-oriented version of the general growth investment strategy.
How Aggressive Growth Works
Aggressive growth investors can expect to see higher volatility (measured by beta) than those using a general growth strategy. The beta is a measure of a particular fund's movement (ups and downs) compared to the overall market. For reference, the market is given a beta of 1.00. An aggressive growth fund will have a beta higher than 1.00.
Types of Aggressive Growth Mutual Funds
Many aggressive growth stock mutual funds have the term "aggressive growth" or "capital appreciation" or "capital opportunity" or "strategic equity" within the fund name. However, this is not always the case. To identify an aggressive growth fund, an investor must do some research. In addition to the beta, the Sharpe Ratio and standard deviation are other methods to evaluate a fund's risk.
One approach to identifying a mutual fund's objective is to visit one of the best mutual fund research sites and look for "aggressive growth" under the Fund Objective. Investors can also look for the stated objective within the mutual fund prospectus or go directly to the mutual fund family website and find the objective there.
There can be significant overlap in funds, meaning they have the same holdings. For that reason, if your portfolio already contains a growth fund, it may not be necessary to add an "aggressive" growth fund. Research the details.
For purposes of diversification, a smart investor who has a large-cap stock fund will look for an aggressive growth fund that invests in mid-cap stocks or small-cap stocks. The reasoning is that you won't want to duplicate the objective you've already covered with the large-cap fund.
Aggressive growth funds typically invest in newer companies and those in the hottest economic sectors. (In the time of COVID-19, travel would most definitely not fall into this category, but companies serving the work from home and e-commerce sectors could.)
A few specific examples of aggressive growth mutual funds as of Aug. 13, 2020, include Fidelity Select Technology (FSPTX) and Vanguard Strategic Equity (VSEQX). FSPTX has a five-year beta (compared to the S&P 500) of 1.13 and VSEQX has a beta of 1.30. Both are mid-cap stock funds with objectives of aggressive growth.
Alternatives to Aggressive Growth
Aggressive growth is an abstract term, meaning that the definition may not be specific enough for the average investor to detect. For example, all aggressive growth funds can be categorized as growth and some (but not all) growth funds may be considered aggressive.
Keep in mind that aggressive growth funds are not right for every investor. Generally, the longer you have until you need to begin withdrawals from your investment account, the more risk you can take. This suggests that younger investors may generally take more risk than those closer to retirement. You will also want to know your risk tolerance before considering the addition of an aggressive growth stock mutual fund to your portfolio.
Conservative funds can be better options for the risk averse because they focus more on fixed investments.
- Aggressive growth investing aims to take on greater risk in return for greater rewards.
- Aggressive growth mutual funds are those with higher beta averages measuring their ups and downs.
- Depending on your risk tolerance, simple growth investments might be better for you.
- Younger people with more time to invest are better candidates for aggressive growth mutual funds.
Yahoo Finance. "Vanguard Strategic Equity Fund Investor Shares (VSEQX)." Accessed Aug. 13, 2020.