We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
4 Funds With High Treynor Ratio for Risk-Loving Investors
Read MoreHide Full Article
In a not so surprising move, the Federal Reserve decided to reduce the benchmark lending rate by 25 basis points to the range of 1.75-2%. The announcement was made at the end of the central bank’s two-day FOMC meeting on Sep 18.
This marked the second such reduction of benchmark rates by the Fed in as many months, the last one being on Jul 31. Moreover, such developments by the Fed come after a span of 11 years, the period when Americans did not witness a rate cut even once.
Fed Chair Jerome Powell had earlier stated that he did not expect a recession in the U.S. economy. At the same time, he emphasized the fact that the central bank will continue to act appropriately to keep the current phase of economic expansion (now in its 11th year) on track.
Meanwhile, per the latest report from the Commerce Department, U.S. retail sales in August increased at a higher-than-expected rate. The rise was supported by an uptick in sales of new automobiles as well as building supplies. Demand for big-ticket items like cars has remained robust amid global economic woes. This shows that consumers still have faith in the future of the country’s economy.
This is evident from the fact that an average American’s view of the current economic condition remains the most favorable in the past 19 years. Notably, the Conference Board’s present situation index, which evaluates consumers’ view of the prevalent business and labor market conditions surged to 177.2 in August.
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, the higher the value of the Treynor ratio, the better it is from an investor’s perspective because it indicates generated higher returns from high risks taken by the investor.
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).
Invesco Small Cap Value Fund Class Y (VSMIX - Free Report) seeks capital growth for the long run. VSMIX invests a bulk of its assets in equity securities, including common stocks of small-cap companies that are expected to be undervalued.
This Sector – Small Cap Value 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.
VSMIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.87%, which is below the category average of 1.25%. The fund has YTD and three-year returns of 13.6% and 5%, respectively. VSMIX had a Treynor ratio of 2.05 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 1.28%. The fund has YTD and three-year returns of 20.4% and 20.2%, respectively. ROGSX had a Treynor ratio of 16.96 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 1.07%. The fund has YTD and three-year returns of 27.1% and 26.3%, respectively. FAOFX had a Treynor ratio of 24.32 in the last three years.
Lord Abbett Developing Growth Fund Class F (LADFX - Free Report) seeks appreciation of capital in the long run. The fund invests in a diversified portfolio of developing growth companies. Moreover, LADFX invests in those companies which its portfolio management team believes has above-average, long-term growth potential.
This Sector - Small Cap Growth 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.
LADFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.78%, which is below the category average of 1.23%. The fund has YTD and three-year returns of 35.2% and 21.7%, respectively. LADFX had a Treynor ratio of 15.91 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 >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
4 Funds With High Treynor Ratio for Risk-Loving Investors
In a not so surprising move, the Federal Reserve decided to reduce the benchmark lending rate by 25 basis points to the range of 1.75-2%. The announcement was made at the end of the central bank’s two-day FOMC meeting on Sep 18.
This marked the second such reduction of benchmark rates by the Fed in as many months, the last one being on Jul 31. Moreover, such developments by the Fed come after a span of 11 years, the period when Americans did not witness a rate cut even once.
Fed Chair Jerome Powell had earlier stated that he did not expect a recession in the U.S. economy. At the same time, he emphasized the fact that the central bank will continue to act appropriately to keep the current phase of economic expansion (now in its 11th year) on track.
Meanwhile, per the latest report from the Commerce Department, U.S. retail sales in August increased at a higher-than-expected rate. The rise was supported by an uptick in sales of new automobiles as well as building supplies. Demand for big-ticket items like cars has remained robust amid global economic woes. This shows that consumers still have faith in the future of the country’s economy.
This is evident from the fact that an average American’s view of the current economic condition remains the most favorable in the past 19 years. Notably, the Conference Board’s present situation index, which evaluates consumers’ view of the prevalent business and labor market conditions surged to 177.2 in August.
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, the higher the value of the Treynor ratio, the better it is from an investor’s perspective because it indicates generated higher returns from high risks taken by the investor.
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).
Invesco Small Cap Value Fund Class Y (VSMIX - Free Report) seeks capital growth for the long run. VSMIX invests a bulk of its assets in equity securities, including common stocks of small-cap companies that are expected to be undervalued.
This Sector – Small Cap Value 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.
VSMIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.87%, which is below the category average of 1.25%. The fund has YTD and three-year returns of 13.6% and 5%, respectively. VSMIX had a Treynor ratio of 2.05 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 1.28%. The fund has YTD and three-year returns of 20.4% and 20.2%, respectively. ROGSX had a Treynor ratio of 16.96 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 1.07%. The fund has YTD and three-year returns of 27.1% and 26.3%, respectively. FAOFX had a Treynor ratio of 24.32 in the last three years.
Lord Abbett Developing Growth Fund Class F (LADFX - Free Report) seeks appreciation of capital in the long run. The fund invests in a diversified portfolio of developing growth companies. Moreover, LADFX invests in those companies which its portfolio management team believes has above-average, long-term growth potential.
This Sector - Small Cap Growth 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.
LADFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.78%, which is below the category average of 1.23%. The fund has YTD and three-year returns of 35.2% and 21.7%, respectively. LADFX had a Treynor ratio of 15.91 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 >>