What is an Aggressive Growth Fund?
An aggressive growth fund is a mutual fund which invests exclusively in high-risk/high-return stocks in an attempt to benefit from the potentially high returns on start-up companies and IPOs.
How Does an Aggressive Growth Fund Work?
An aggressive growth fund brings together a number of equity securities issued by start-up companies believed to have a high growth potential combined with shares of initial public offerings (IPOs) issued by existing companies intending to expand. As a result, many of the stocks comprised in an aggressive growth portfolio may be quickly purchased and sold in order to successfully capture profits which can be reinvested in the fund or allocated among investors as distribution payments. In this respect, aggressive growth fund managers seek increases in portfolio value from capital appreciation.
As a high-risk/high-return investment scheme, aggressive growth funds may perform exceedingly well or rather poorly as a result of the wide price volatility inherent in the market for start-up companies and IPOs. Historically, aggressive growth funds experience strong gains during a bull market and significant losses in a bear market.
Why Does an Aggressive Growth Fund Matter?
The high risk levels associated with aggressive growth funds do not make them a good choice for risk-averse investors. Moreover, due to their wide price volatility, and in spite of the potential returns, it is recommended that units of aggressive growth funds constitute a small piece of a diversified portfolio.