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4 Funds With High Treynor Ratio for Risk-Taking Investors
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Wall Street had a record-shattering first half. The three major indices — the Dow, the S&P 500 and the Nasdaq — rose an impressive 14%, 17.4% and 20.7%, respectively. Further, the broader S&P 500 notched its best performance in the first six months of the year since 1997.
Positive developments on the U.S.-China trade war front, Fed’s dovish stance and a rebound in crude oil prices provided the necessary stimulus to the stock market.
Moreover, per the latest report by the Labor Department on Jul 5, the U.S. economy added a staggering number of jobs in June. The were 224,000 job additions in June, which surpassed the consensus estimate of 161,000. Such developments have put to rest fears of a fundamental weakness in the U.S. economy.
Under such circumstances, risk loving investors should consider parking their money in mutual funds with high Treynor ratios. Treynor ratio equates excess returns over the risk-free rate to the additional risk taken by an investor.
What Does Treynor Ratio Mean for Mutual Funds?
Treynor ratio, also sometimes referred to as the reward-volatility ratio, essentially measures how successful an investment is in terms of returns, taking into consideration the inherent level of risk involved. This ratio was developed by Jack L. Treynor. Mathematically, the Treynor ratio is calculated as follows:
Treynor Ratio = (Rp – Rf)/βp
Where,
Rp = Expected Portfolio Return
Rf – Risk Free Rate
Beta(p) = Portfolio Beta
The Treynor ratio assumes that since risk is an unavoidable element of any investment, it has to be fined. Moreover, higher the value of the Treynor ratio, the better it is from an investor’s perspective because it indicates that the investor has generated higher returns from high risks that he has taken.
4 Best Choices
We have, thus, selected four 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 year-to-date (YTD) and three-year returns. Additionally, the minimum initial investment is within $5000 and each of these funds has a high three-year Treynor ratio and beta.
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).
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 1.07%. The fund has YTD and three-year returns of 26.4% and 28.5%, respectively. FAOFX had a Treynor ratio of 26.42 in the last three years.
Red Oak Technology Select (ROGSX - Free Report) fund invests 80% of its assets in securities of companies from the technology sector. The fund invests in both U.S. and non-U.S. stocks.
This Zacks sector - Tech 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.
ROGSX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.94%, which is below the category average of 1.29%. The fund has YTD and three-year returns of 21% and 23.8%, respectively. ROGSX had a Treynor ratio of 20.33 in the last three years.
BlackRock Allocation Target Shares Series A Portfolio (BATAX - Free Report) fund aims for a high level of current income that is consistent with capital preservation. In order to pursue its objective, the fund will primarily invest in asset-backed securities, and commercial and residential mortgage-backed securities issued or guaranteed by the government of the United States.
This Sector – Govt Mtge-Intermediate 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.
BATAX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.01%, which is below the category average of 0.81%. The fund has YTD and three-year returns of 4.9% and 5.8%, respectively. BATAX had a Treynor ratio of 23.63 in the last three years.
Janus Global Technology T (JAGTX - Free Report) fund invests a huge portion of its assets in equity securities of those companies that are expected to gain from improvements or advancements in technology. JAGTX seeks capital appreciation for the long run and invests in both domestic and foreign companies with stable growth potential. It generally invests in companies from different nations including the United States.
This Sector - Tech 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.
JAGTX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.92%, which is below the category average of 1.29%. The fund has YTD and three-year returns of 27.5% and 26.5%, respectively. JAGTX had a Treynor ratio of 20.96 in the last three years.
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4 Funds With High Treynor Ratio for Risk-Taking Investors
Wall Street had a record-shattering first half. The three major indices — the Dow, the S&P 500 and the Nasdaq — rose an impressive 14%, 17.4% and 20.7%, respectively. Further, the broader S&P 500 notched its best performance in the first six months of the year since 1997.
Positive developments on the U.S.-China trade war front, Fed’s dovish stance and a rebound in crude oil prices provided the necessary stimulus to the stock market.
Moreover, per the latest report by the Labor Department on Jul 5, the U.S. economy added a staggering number of jobs in June. The were 224,000 job additions in June, which surpassed the consensus estimate of 161,000. Such developments have put to rest fears of a fundamental weakness in the U.S. economy.
Under such circumstances, risk loving investors should consider parking their money in mutual funds with high Treynor ratios. Treynor ratio equates excess returns over the risk-free rate to the additional risk taken by an investor.
What Does Treynor Ratio Mean for Mutual Funds?
Treynor ratio, also sometimes referred to as the reward-volatility ratio, essentially measures how successful an investment is in terms of returns, taking into consideration the inherent level of risk involved. This ratio was developed by Jack L. Treynor. Mathematically, the Treynor ratio is calculated as follows:
Treynor Ratio = (Rp – Rf)/βp
Where,
The Treynor ratio assumes that since risk is an unavoidable element of any investment, it has to be fined. Moreover, higher the value of the Treynor ratio, the better it is from an investor’s perspective because it indicates that the investor has generated higher returns from high risks that he has taken.
4 Best Choices
We have, thus, selected four 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 year-to-date (YTD) and three-year returns. Additionally, the minimum initial investment is within $5000 and each of these funds has a high three-year Treynor ratio and beta.
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).
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 1.07%. The fund has YTD and three-year returns of 26.4% and 28.5%, respectively. FAOFX had a Treynor ratio of 26.42 in the last three years.
Red Oak Technology Select (ROGSX - Free Report) fund invests 80% of its assets in securities of companies from the technology sector. The fund invests in both U.S. and non-U.S. stocks.
This Zacks sector - Tech 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.
ROGSX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.94%, which is below the category average of 1.29%. The fund has YTD and three-year returns of 21% and 23.8%, respectively. ROGSX had a Treynor ratio of 20.33 in the last three years.
BlackRock Allocation Target Shares Series A Portfolio (BATAX - Free Report) fund aims for a high level of current income that is consistent with capital preservation. In order to pursue its objective, the fund will primarily invest in asset-backed securities, and commercial and residential mortgage-backed securities issued or guaranteed by the government of the United States.
This Sector – Govt Mtge-Intermediate 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.
BATAX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.01%, which is below the category average of 0.81%. The fund has YTD and three-year returns of 4.9% and 5.8%, respectively. BATAX had a Treynor ratio of 23.63 in the last three years.
Janus Global Technology T (JAGTX - Free Report) fund invests a huge portion of its assets in equity securities of those companies that are expected to gain from improvements or advancements in technology. JAGTX seeks capital appreciation for the long run and invests in both domestic and foreign companies with stable growth potential. It generally invests in companies from different nations including the United States.
This Sector - Tech 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.
JAGTX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.92%, which is below the category average of 1.29%. The fund has YTD and three-year returns of 27.5% and 26.5%, respectively. JAGTX had a Treynor ratio of 20.96 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 >>