Aggressive Growth Mutual Funds Strategies and Downside Risks

What are Aggressive Growth Mutual Funds

Aggressive growth mutual funds are the speculative side of the mutual fund family.  Unlike value funds which are publicized as being conservative and long-term in their scope, aggressive growth funds are the "make money" now option.  The basic strategy of an aggressive growth fund is to identify stocks which are positioned to make explosive moves in the near future.  These stocks are often small or mid-cap stocks that operate in the technology sector.

Aggressive Growth Investing Strategies

Aggressive growth funds are constantly in the game looking for above average gains.  These funds love to stick to three main areas: (1) IPOs, (2) low priced issues, and (3) volatile stocks.

IPOs

IPOs are always a hot spot for aggressive growth funds because these companies are set to make potentially quick runs after their public offerings.  Aggressive fund managers will investigate these companies with hopes of being able to determine if these companies will ultimately be profitable.  Over recent years there have been fewer and fewer IPOs, but there have been some spots of hope like Google and Bidu, where fund managers were able to make some size able gains in a relatively short-period of time.

Low Priced Issues

This is a fancy way of saying stocks valued above $5 and below $20.  Mutual fund managers tend to stay away from stocks that are valued below $5 because these are considered, penny stocks.  However, these fund managers recognize that if they are going to make size able returns, odds are a cheap stock is going to double before a $50 dollar stock.  Many low priced stocks are also waiting on the release of a new technology or drug, that could potentially send the stock through the roof.  This sort of investing strategy requries an appetitie for risks as these securities will have high volatility due to the number of participants looking to get rich quick.

Volatile Stocks

Volatile stocks are always an active traders delight.  These are stocks which simply must make a significant move up or down on a regular basis.  Since aggressive growth fund managers are looking to make money, they will often buy pullbacks on stocks which are exploding to the upside.  This way they can jump on the upward momentum in hopes of making significant gains.

Downside of Aggressive Growth Mutual Funds

Aggressive growth funds have the potential to make a high annual rate of return.  This simple fact often brings in a number of investors looking to make it fast.  The key thing to remember about aggressive growth funds is that they can produce some stellar results in bull markets.  However, during severe bear markets, such as the credit crisis of 2008, there are no gains to be had.  Hence, these aggressive growth funds will experience stifling losses that may erase years worth of gains.

How to Invest in Aggressive Growth Funds

Investing in aggressive growth funds requires more attention and effort from the everyday investor than your standard mutual fund.  This is because aggressive growth mutual funds can bring about great pain to an investor's retirement money if not tracked properly.  So, for an investor to place their hard earned money in this type of fund, its best to make sure the broad market is in a strong uptrend.  This will ensure that odds are in favor that aggressive stocks have a shot at going up and can catch a bid from the larger market.