The growth mutual fund category has outperformed the broader markets in the first quarter. The S&P 500 (SPY) and the DOW (DIA) had a dismal first quarter. While S&P 500 gained 0.4%, the DOW slipped. However, the large, mid and small cap growth mutual funds posted decent gains, even beating their value and blend counterparts.

When capital appreciation over the long term takes precedence over dividend payouts, growth funds become a natural choice for investors. However, investors looking for the highest capital gains should look no further than investing in aggressive growth mutual funds.

The Russell Aggressive Growth ETF boasts year-to-date return of 16.7%. Thus, it outperformed the broader markets and even the returns from large, mid and small cap growth funds. For the risk takers and with the objective to seek highest capital gains, aggressive growth mutual funds are the best options to invest in. The search for higher returns often leads investors with the willingness to accept a high risk-return trade off toward aggressive growth mutual funds.

Aggressive Growth Funds

These funds invest in companies that show high growth prospects, but that comes with the risk of share price fluctuations. This category of funds also invests heavily in undervalued stocks, IPOs and relatively volatile securities in order to profit from them in a congenial economic climate. Securities are selected on the basis of their issuing company’s potential for growth and profitability.

This category of instruments has a strong positive correlation with market movements and provides good returns during a market upswing. Such performance is achieved by investing in securities issued by companies with strong growth potential and in IPOs which are often resold quickly at a handsome profit. Many aggressive growth mutual funds may also invest in options to achieve their goal of high returns.

Growth Funds’ Performance

It is said that a relatively higher tolerance to risk and the willingness to park funds for the longer term are necessary when investing in these funds. This is because they may experience relatively more fluctuations than other fund classes. However, that has not really been the case for the growth funds, and more so for aggressive ones, during this first quarter.

The growth funds have outperformed the value and blend counterparts’ returns year to date. The following chart lists the category returns, which reflects that though growth funds were short of the returns that Japan, Healthcare or India Equity funds offered, they nonetheless featured prominently in the top 10 for the first quarter of 2015.


Source: Morningstar

3 Aggressive Growth Funds to Buy

Below we present 3 top-ranked mutual funds with aggressive growth investment objective. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) or a Zacks Mutual Fund Rank #2 (Buy) as we expect these mutual 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 the likely future success of the fund.

The funds have relatively low expense ratio and carry no sales load. They also have decent year-to-date, 1-year and 3-year returns.

PRIMECAP Odyssey Aggressive Growth (POAGX - MF report) prioritizes investing in US companies having rapid earnings growth potential. Though the fund invests across market sectors and market caps, it has historically invested most of its assets in mid to small cap firms.

POAGX currently carries a Zacks Mutual Fund Rank #1 (Strong Buy). It has returned 6.5% year to date, beating the broader markets. The 1 and 3-year returns stand at healthy 17% and 26.3%, respectively. The fund carries an expense ratio of 0.62% as compared to category average of 1.31%.

Vantagepoint Aggressive Opportunities Investor (VPAOX - MF report) seeks capital growth over the long term. It invests using an actively-managed strategy in stocks of small to mid cap domestic and foreign firms, which are believed to have high capital growth prospects. The fund also invests in stocks listed in a custom version of the Russell Midcap Growth Index.

VPAOX currently carries a Zacks Mutual Fund Rank #2 (Buy). It has returned 5.4% year to date, beating the broader markets. The 1 and 3-year returns stand at healthy 8% and 15.4%, respectively. The fund carries an expense ratio of 0.83% as compared to category average of 1.31%.

ClearBridge Aggressive Growth A (SHRAX - MF report) invests in companies whose growth or earnings exceed the average rate of earnings growth of companies that make up the S&P 500 index. It purchases securities of prominent companies with large market capitalizations which have the ability to grow appreciably over the long term.

SHRAX currently carries a Zacks Mutual Fund Rank #1 (Strong Buy). It has returned 3.1% year to date. The 1 and 3-year returns stand at healthy 10.1% and 20.7%, respectively. The fund carries an expense ratio of 1.15% as compared to category average of 1.20%.