A growth stock is an equity investment in a company that is expected to grow at a faster rate compared to the overall stock market. Aggressive growth is like an intensified, greater growth-oriented version of the general growth investment strategy.
How Do Aggressive Growth Mutual Funds Work?
Aggressive growth funds generally work the same way any other mutual funds work. The fund managers select the investments and the way they are allocated to best mirror the fund’s intent. Because an aggressive growth fund is designed to grow faster than an index or other benchmark, the fund management chooses investments that it thinks will grow at the rate desired. For example, Vanguard Financials Index Fund Admiral Shares (VFAIX) has a beta of 1.0 (compared to the Spliced U.S. Investable Market Financial 25/50 Index) and 1.10 (compared to the Dow Jones U.S. Total Stock Market Index). It consists of holdings from banks, insurance companies, or other financial services providers from the financial sector. According to the product summary, the main risk comes from its limited scope—only investing in financial services companies.
What It Means for Individual Investors
Aggressive growth investors can expect to see higher volatility than those using a general growth strategy; a fund’s beta measures this. It indicates how a fund will respond to fluctuations of an index, such as the S&P 500 or the overall market. For reference, an aggressive growth fund is generally compared to another index, which is assigned a beta of 1.0. This means that an aggressive fund will have a beta of more than 1.0, while a standard growth fund would be less, such as .85. A beta of .85 means the fund is expected to return 15% less than its benchmark; a beta of 1.1 would suggest that the fund managers expect it to perform 10% better (or worse) than its benchmark. For instance, if your aggressive growth fund falls 1%, you would lose 1.1% compared to a growth fund with a lower beta (if the two were compared to the same index). So, the higher the beta, the more you stand to lose if the fund falls. However, if your fund increases by 1%, you would gain 1.1%. To place this in perspective, from Jan. 3, 2022, to June 7, 2022, the S&P 500 lost 12.7%. A fund with a beta of 1.1 would have lost 13.97% in that time. If you had $10,000 in an aggressive growth fund with a beta of 1.1, you’d have lost $1,397 in six months. A fund with a beta—and the same comparative index—of 0.95 would have lost $1,206.50.
Types of Aggressive Growth Mutual Funds
Many aggressive growth stock mutual funds have the terms “aggressive growth,” “capital appreciation,” “capital opportunity,” or “strategic equity” within their names. To find an aggressive growth fund, you must do some research. Along with beta, you can look at a fund’s Sharpe Ratio and standard deviation to understand a fund’s risk. One approach to finding a mutual fund’s objective is to visit a mutual fund research site. Look for “aggressive growth” under the Fund Objective. You can also look for the stated objective within the mutual fund prospectus, or you can go straight to the mutual fund’s website and find it there. Aggressive growth funds often invest in newer companies, or they may invest in those in the hottest economic sectors. Examples of some aggressive growth mutual funds include:
Fidelity Select Technology: FSPTX has a three-year beta (compared to the S&P 500) of 1.13. The fund invests mostly in businesses in software, and semiconductors.Vanguard Strategic Equity: VSEQX has a three-year beta (compared to the Dow Jones Total Stock Market Index) of 1.12, and 1.02 (compared to the MSCI US Small + Mid Cap 2200 Index). The fund invests mostly in financials, information technology, industrials, consumer discretionary, and healthcare.
