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Jensen’s alpha, also referred to as ex-post alpha, essentially measures how much extra a portfolio has earned above the return predicted by the capital asset pricing model (CAPM). This ratio was developed by American economist Michael Jensen in 1968. Mathematically, the Jensen’s alpha is calculated as follows:
Jensen’s alpha = R(i) - (R(f) + B x (R(m) - R(f)))
Where
R(i) = the realized return of the portfolio or investment
R(m) = the realized return of the appropriate market index
R(f) = the risk-free rate of return for the time period
B = the beta of the portfolio of investment with respect to the chosen market index
A positive Jensen’s alpha indicates that managers of the fund, through careful stock selection, have been able to extract higher returns than the market. Further, an investor should also look at return a fund has generated compared to the risk involved. This is because investors need to be aware of a properly calculated measure of total return from an investment against the inherent risks involved.
4 Best Choices
Also known as the Jensen's Performance Index, Jensen’s alpha measures the return of an investment compared to its expected risk-adjusted return. We have, thus, selected three mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns.
Additionally, the minimum initial investment is within $5000 and each of these funds has a high three-year alpha. A positive alpha indicates that the portfolio manager was able to earn substantial returns compared to the additional risk taken over the entire period of investment.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
American Century Investments Focused Dynamic Growth Fund Investor Class (ACFOX - Free Report) seeks long-term appreciation of capital. ACFOX’s portfolio managers search for stocks of early and rapid-stage growth companies they expect will increase in value over time. They base their investment decisions on the analysis of individual companies rather than general economic forecasts. ACFOX invests in securities of companies whose revenues are growing at an accelerated pace.
This Sector- Large Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
ACFOX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.85%, which is below the category average of 1.05%. The fund has three and five-year returns of 21.8% and 15%, respectively. ACFOX had an alpha of 11.8 in the last three years.
Fidelity Advisor Series Growth Opportunities Fund (FAOFX - Free Report) seeks growth of capital by investing primarily in common stocks. The fund invests in securities of only those companies which the Fidelity Management & Research Company (FMR) believes have above-average growth potential. FAOFX invests in securities of both U.S. as well as non-U.S.-based companies.
This Sector- Large Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FAOFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.01%, which is below the category average of 1.05%. The fund has three and five-year returns of 25.5% and 18.3%, respectively. FAOFX had an alpha of 14.91 in the last three years.
Calvert Equity Fund Class A (CSIEX - Free Report) primarily invests its assets in equity securities of companies with market capitalization ranked among the top 1000 U.S.-listed companies. The fund mostly aims for capital appreciation. CSIEX may also invest up to 25% of its assets in U.S. dollar-denominated securities of foreign companies that trade in the United States.
This Sector- Large Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
CSIEX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.99%, which is below the category average of 1.05%. The fund has three and one-year returns of 16.6% and 12.7%, respectively. CSIEX had an alpha of 8.31 in the last three years.
Fidelity Select Health Care Portfolio (FSPHX - Free Report) fund aims for capital appreciation. The fund invests the majority of its assets in securities of companies primarily engaged in the designing, manufacturing or marketing of products or services used in the healthcare sector. The non-diversified fund invests in both U.S. and non-U.S. companies.
This Sector-Health product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSPHXhas a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.70%, which is below the category average of 1.24%. The fund has three and five-year returns of 15.3% and 9.1%, respectively. FSPHXhad an alpha of 7.1 in the last three years.
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4 Funds With High Alpha You Should Buy
Jensen’s alpha, also referred to as ex-post alpha, essentially measures how much extra a portfolio has earned above the return predicted by the capital asset pricing model (CAPM). This ratio was developed by American economist Michael Jensen in 1968. Mathematically, the Jensen’s alpha is calculated as follows:
Jensen’s alpha = R(i) - (R(f) + B x (R(m) - R(f)))
Where
A positive Jensen’s alpha indicates that managers of the fund, through careful stock selection, have been able to extract higher returns than the market. Further, an investor should also look at return a fund has generated compared to the risk involved. This is because investors need to be aware of a properly calculated measure of total return from an investment against the inherent risks involved.
4 Best Choices
Also known as the Jensen's Performance Index, Jensen’s alpha measures the return of an investment compared to its expected risk-adjusted return. We have, thus, selected three mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns.
Additionally, the minimum initial investment is within $5000 and each of these funds has a high three-year alpha. A positive alpha indicates that the portfolio manager was able to earn substantial returns compared to the additional risk taken over the entire period of investment.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
American Century Investments Focused Dynamic Growth Fund Investor Class (ACFOX - Free Report) seeks long-term appreciation of capital. ACFOX’s portfolio managers search for stocks of early and rapid-stage growth companies they expect will increase in value over time. They base their investment decisions on the analysis of individual companies rather than general economic forecasts. ACFOX invests in securities of companies whose revenues are growing at an accelerated pace.
This Sector- Large Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
ACFOX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.85%, which is below the category average of 1.05%. The fund has three and five-year returns of 21.8% and 15%, respectively. ACFOX had an alpha of 11.8 in the last three years.
Fidelity Advisor Series Growth Opportunities Fund (FAOFX - Free Report) seeks growth of capital by investing primarily in common stocks. The fund invests in securities of only those companies which the Fidelity Management & Research Company (FMR) believes have above-average growth potential. FAOFX invests in securities of both U.S. as well as non-U.S.-based companies.
This Sector- Large Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FAOFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.01%, which is below the category average of 1.05%. The fund has three and five-year returns of 25.5% and 18.3%, respectively. FAOFX had an alpha of 14.91 in the last three years.
Calvert Equity Fund Class A (CSIEX - Free Report) primarily invests its assets in equity securities of companies with market capitalization ranked among the top 1000 U.S.-listed companies. The fund mostly aims for capital appreciation. CSIEX may also invest up to 25% of its assets in U.S. dollar-denominated securities of foreign companies that trade in the United States.
This Sector- Large Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
CSIEX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.99%, which is below the category average of 1.05%. The fund has three and one-year returns of 16.6% and 12.7%, respectively. CSIEX had an alpha of 8.31 in the last three years.
Fidelity Select Health Care Portfolio (FSPHX - Free Report) fund aims for capital appreciation. The fund invests the majority of its assets in securities of companies primarily engaged in the designing, manufacturing or marketing of products or services used in the healthcare sector. The non-diversified fund invests in both U.S. and non-U.S. companies.
This Sector-Health product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSPHXhas a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.70%, which is below the category average of 1.24%. The fund has three and five-year returns of 15.3% and 9.1%, respectively. FSPHXhad an alpha of 7.1 in the last three years.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>