Back to top

Image: Bigstock

3 Funds With High Alpha for Above-Average Returns

Read MoreHide Full Article

Jensen’s alpha, also sometimes referred to as the ex-post alpha, essentially measures how much extra a portfolio has earned above the return predicted by 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 the managers of the fund, through careful stock selection, have been able to extract higher returns than the market. Furthermore, an investor should also look at the amount of return a fund has generated compared to the risk involved. It is because investors need to be aware of a properly-calculated measure of total return from an investment against the inherent risks involved.

3 Best Choices

Also known as the Jensen's Performance Index, it 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 year-to-date (YTD) and one-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 return 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).

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 1.08%. The fund has YTD and one-year returns of 28.7% and 28%, respectively. FAOFX had an alpha of 11.15 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 1.08%. The fund has YTD and one-year returns of 29.4% and 24.1%, respectively. CSIEX had an alpha of 7.46 in the last three years.

Janus Global Technology Fund Class T (JAGTX - Free Report) 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 1.30%. The fund has YTD and one-year returns of 33% and 24.9%, respectively. JAGTX had an alpha of 9.58 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 >>


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Fidelity Advisor Growth Opportunit (FAOFX) - free report >>

Calvert Equity Port A (CSIEX) - free report >>

Janus Henderson Global Tech T (JAGTX) - free report >>

Published in