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5 Best-Performing Aggressive Growth Mutual Funds of Q3 (revised)
November 21, 2017

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Markets gained traction in the third quarter primarily due to strong quarterly earnings which came in above estimates. This led to benchmarks hitting record highs in the period. Another major push came in the form President Trump’s new tax code which sought to reduce tax rates considerably. Also, the U.S. economy has improved at an astounding rate for the past two quarters and unemployment hit its lowest level since 2000. Under such circumstances, we believe that a relatively risky investment would fetch great returns.

Banking on such positive vibes, the addition of mutual funds with huge growth potential to your portfolio would prove to be lucrative. Aggressive growth funds are considered one of the best investment options for investors with a high risk appetite in search of optimum capital appreciation. Now, let us take a look at some of the encouraging factors that contributed to gains in these mutual funds.

Strong Earnings Powered Dazzling Performances

In the third quarter, the Dow, the S&P 500 and the Nasdaq gained 4.9%, 3.9% and 5.8%, respectively. It should be noted that the Dow posted its eighth straight quarter of gains — the first time since 1997. Meanwhile, the S&P also gained for the eighth consecutive quarter. The Nasdaq posted its fifth consecutive quarter of gains for the first time since 2015. Such amazing numbers for the S&P 500 and the Nasdaq were made possible by a stellar rally of more than 8% in the information technology sector, which was also the best-performing sector in 3Q17.

 

As of Nov 3, 406 S&P 500 companies, which account for 85.4% of the index’s total market capitalization, reported Q3 earnings. Total earnings for these companies are up 7.5% from the same period last year on 6.3% higher revenues, with 73.9% beating EPS estimates and 66.7% beating revenue estimates. (Read More: The Tech Sector's Impressive Earnings Power on Display)

Economy Growing By Leaps and Bounds

According to the latest report from the Commerce Department, the U.S. economy improved at an impressive annual rate of 3%. This came in above the consensus estimate of 2.6%, but lower than the second-quarter figure of 3.1%. This is also the first time since 2014 that the U.S. economy expanded at a 3% annual pace for two consecutive quarters.

Further, unemployment showed continued decline in the third quarter, hitting its lowest levels since 2000. This shows that more number of Americans are currently employed, leaving them with more money to invest. This implies a much more stable economy.

 

What has also helped markets rally recently was President Trump’s new tax code. In an announcement last month, the Trump administration unveiled new reforms in tax policies that will effectively lower taxes on businesses and individuals. (Read More)

Manufacturing and Service Activity Flourishes

Business activity surged almost 4% in the month of September, posting growth for 98 months on the trot. The new orders index also increased to 63% in September from 57.1% in August and the employment index grew to 56.8%. Moreover, economic activity in the non-manufacturing sector surged for 93 straight months.

According to the Institute of Supply Management (ISM), the manufacturing index climbed to 60.8% in September from 58.8% in August, scaling the highest level since May 2004. Notably, 17 of the 18 industries reported growth last month, led by textile mills and machinery. Only one industry, furniture manufacturing, witnessed a decline. (Read More)

Buy These 5 Best Performing Aggressive Growth Funds

Aggressive growth funds generally invest in small- and mid-cap companies with ample scope to grow over time. In this scenario, we have selected five aggressive growth funds sporting a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging third-quarter and YTD returns. Additionally, the minimum initial investment is within $5000 and net assets are above $50 million.

These funds invest in companies that show high growth potential, but this comes with the risk of share price fluctuation. This category of funds also invests heavily in undervalued stocks, IPOs and relatively volatile securities, and seeks to profit from them in a congenial economic climate.

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.

Columbia Acorn Inst ACRNX seeks growth of capital in the long run. ACRNX invests the lion's share of its assets in primarily in the common stocks of both small- as well as mid-cap companies. Such companies normally have a capitalization of between $250 million and $10 billion at the time of investment. The fund normally invests in domestic companies.

ACRNX has an annual expense ratio of 0.82%, which is below the category average of 1.21%. The fund has three-year and YTD returns of 10.22% and 22.5%, respectively.

Commerce MidCap Growth CFAGX seeks growth of capital for the long run. CFAGX invests the lion’s share of its assets in common stocks of mid-cap companies, which are included on the Russell Midcap Growth Index. The fund primarily invests in stocks of those companies whose price volatility was below the average level in the past.

CFAGX has an annual expense ratio of 0.87%, which is below the category average of 1.21%. The fund has three-year and YTD returns of 10.5% and 17.8%, respectively.

Columbia Mid Cap Growth Z CLSPX invests the major portion of its assets in equity securities including common stocks of companies having market capitalization identical to those listed on the Russell Midcap Index. CLSPX invests in securities of companies that are expected to provide impressive earnings growth over the long run.

CLSPX has an annual expense ratio of 0.94%, which is below the category average of 1.21%. The fund has three-year and YTD returns of 9.3% and 20.2%, respectively.

BlackRock Small Cap Growth Equity Investor A CSGEX invests the lion’s shares of its assets in equity securities of small cap domestic companies. According to CSGEX advisors, companies with a market cap similar to those included in the Russell 2000 Index are considered small cap firms.

CSGEX has an annual expense ratio of 1.14%, which is below the category average of 1.26%. The fund has three-year and YTD returns of 8.5% and 13.2%, respectively.

Franklin Small-Mid Cap Growth A FRSGX invests the major portion of its assets in equity securities of both mid- and small-cap companies. The fund invests in only small-cap companies with a market cap similar to those included on the Russell 2500 Index. Similarly, the fund would invest in only mid-cap companies with a market cap similar to those included on the Russell Midcap Index. FRSGX invests heavily in companies from the information technology, consumer discretionary and healthcare sectors.

FRSGX has an annual expense ratio of 0.94%, which is below the category average of 1.21%. The fund has three-year and YTD returns of 7.5% and 19.8%, repsectively.

(NOTE: We are republishing this article to correct an error. The original version, issued November 9, 2017, should no longer be relied upon.)

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