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Value Line’s Aggressive Growth objective group is, by design, broadbased. It is meant to house any equity fund that invests predominantly in higher-risk common stocks or that has a stated policy of maximum growth without regard to income or time horizons. This clearly covers a lot of ground.

Note, however, that funds with specific market capitalization specializations and those that invest in narrow industries are often placed into other, more appropriate, objective groups. For example, funds with a focus on small companies are more appropriate in the Small Company objective group for comparison purposes.

That said, there is often a very fine line between a fund that falls into the Aggressive Growth objective and any number of other objectives, including Growth and Small Cap. Much ultimately depends on a judgment call.

The names of the funds in this group don’t normally have the word aggressive in them, though some do. One overriding feature, however, is the level of risk that managers here are willing to accept. Thus, a fund with the word “value” in its name might very well find its way into this objective group because it invests extensively in turnaround situations—an aggressive tactic that materially increases both risk and potential reward.

Very often, the funds in this objective group have concentrated portfolios. While some argue that these types of funds concentrate investment in a manager’s best ideas, it is undeniable that a smaller number of holdings also reduces diversification—which often increases risk. These types of funds can have the terms “select,” “focused,” or “concentrated” in their names to denote the relatively small number of holdings, though that is not always the case.

Included in this category are funds that are designed to outperform an index, such as the S&P 500 Index, NASDAQ, or The Dow Jones Industrial Average, by a margin of two or, in some cases, three to one. These funds are designed to outperform an index by going up twice as fast, for example, as the S&P 500. Such funds use leveraged instruments, including equity index swaps, futures contracts, and options to achieve their required results. This type of fund allows individual investors to hedge at least a percentage of their investment portfolio as an alternative to selling a fund when prices appear to be high. As an example, such funds can also be used to hedge an individual retirement account portfolio. Losses in an IRA cannot be deducted from ordinary income, so such hedges help protect gains.  

Over the long term, the Aggressive Growth objective group has been a decent performer relative to the broader market, as measured by the S&P 500. For the 10-year period ended May 31, 2012, the group had an annualized gain of 3.5%, while the S&P 500 reported an annualized gain of 4.1%. For five years and three years, the group had annualized returns of -1.4% and 12.2%, respectively, while the S&P 500 reported annualized gains of -0.9% and 14.9% respectively.  During the past year, the Aggressive Growth objective group underperformed, and reported a return of -6.0%, below the S&P 500, which had a return of -0.4%. Also, year to date through May 31, 2012, the group reported a gain of 3.8% compared with a gain of 5.1% for the Index. The group has an average Risk Rank of 3, indicating that funds in this group might appeal to a broad range of investors. That said, as the stock market continues to seesaw, funds with concentrated portfolios may be quite volatile.

One fund with an excellent year-to-date return through May 31, 2012 is SunAmerica Focused Growth Fund (SSAAX). This fund seeks long term growth of capital. The fund’s principal investment strategies are growth and “focused.” The growth oriented philosophy to which the fund subscribes—that of investing in securities believed to offer the potential for long-term growth of capital—focuses on securities with a historical record of above-average earnings growth; significant potential for earnings growth; proven or unusual products or services. 

A focused strategy is one in which an investment adviser actively invests in a small number of holdings which constitute its favorite stock-picking ideas at any given moment. A focus philosophy reflects the belief that, over time, the performance of most investment managers’ “highest confidence” stocks exceeds that of their more diversified portfolios. The fund will generally hold between 30 to 50 securities, although it may, in its discretion, hold less than 30 securities. 

Another fund with a relatively good return is Hartford Growth Opportunity Fund A (HGOAX). This fund seeks capital appreciation. Under normal circumstances, the fund invests primarily in a diversified portfolio of mid to large capitalization stocks covering a broad range of industries, companies and market capitalizations that the sub-adviser, Wellington Management Company, LLP, believes have superior growth potential.  The fund invests up to 25% of its total assets in foreign issuers and non-dollar securities. It uses fundamental analysis to identify companies with accelerating operating characteristics for purchase.

A third fund with a relatively good year-to-date return is MassMutual Select Growth Opportunities Fund (MMAAX). This fund seeks long-term capital appreciation. Under normal market conditions, the fund invests at least 80% of its net assets in equity securities, including common stocks, preferred stocks, securities convertible into common or preferred stock, rights, and warrants. The fund typically invests most of its assets in equity securities of U.S. companies, but may invest up to 20% of its total assets in foreign securities and American Depositary Receipts (“ADRs”). 

The fund is non-diversified, meaning it may hold larger positions in a smaller number of stocks than a diversified fund. The fund is managed by two subadvisers, Sands Capital Management, LLC and Delaware Management Company, each being responsible for a portion of the portfolio, but not necessarily equally weighted.  

Sands Capital seeks long-term capital appreciation by investing in stocks believed to have potential for dramatic wealth creation using bottom-up, fundamental research and focusing on six key investment criteria: sustainable, above average earnings growth, a leadership position in a promising business space, significant competitive  advantages/unique business franchise, a clear mission and value-added focus, financial strength, and rational valuation relative to the market and business prospects.   

Sands Capital does not typically invest in companies with market capitalizations less than $1 billion. DMC seeks to select securities that it believes are undervalued in relation to their intrinsic value, as indicated by multiple factors, including the return on capital above its cost of capital. DMC will normally invest in common stocks of companies with market capitalizations of at least $3 billion at the time of purchase. Each subadviser may consider selling a security for the fund, if, for example, in its judgment, the prospects for future growth do not look promising , a more attractive opportunity is identified, if fundamentals unexpectedly change or if valuations are stretched past fair value.

  

Top 10 Aggressive Growth Funds Performance

 

Fund Name

Ticker

% Year-to-date

Total Return

% 1 Month

Total

Return

% 3 Month

Total

Return

% 6 Month

Total

Return

% 5 Year

Total

Return

Annualized

SunAmerica Focused  Growth A

SSAAX

15.70

-4.32

-0.89

15.49

-0.64

Hartford Growth Opportunity A

HGOAX

11.88

-7.03

-3.76

8.13

-1.38

MassMutual Select Growth Opportunity A

MMAAX

10.62

-7.44

-3.63

10.62

4.60

Wells Fargo Omega Growth A

EKOAX

9.76

-8.71

-4.39

6.06

5.23

Rydex S&P 500 2X Strategy A

RYTTX

8.87

-11.94

-7.86

10.65

-11.90

  

Delaware Select Growth A

DVEAX

8.52

-7.10

-5.14

6.08

6.03

  

Goldman Sachs Concentrated Growth A

GCGAX

8.23

-7.32

-4.37

7.14

-0.46

ProFunds UltraBull Inv.

ULPIX

8.42

-11.96

-8.09

10.20

-11.99

Alger Spectra A

SPECX

7.99

-6.69

-4.53

7.56

4.73

Rydex MidCap 1.5X Strategy A

RYAHX

7.80

-9.80

-7.93

6.70

-4.19

Aggressive Growth Objective Group

  

3.82

-5.65

-4.60

2.99

-1.45

  

At the time of this article's writing, the authors did not have positions in any of the funds mentioned.