When investing in aggressive growth funds, consider that growth can be found in any sector and it happens at different times, therefore a concentrated basket approach should be contemplated.
Because aggressive growth is not necessarily widely recognized as an individual equity stock class, there aren't any real wide indices that offer only or exclusively aggressive growth exposure. So there are not a lot of passively managed options in the aggressive growth arena.
Sector Versus Style
When you are looking at managers who do specialize in aggressive growth, it's important to understand their investment process because a lot of these managers will specialize in sectors, and they may be technology, biotech, or consumer goods specialists who are looking to be in companies which are hot at any one given time. But it's also important to know that growth isn't always centered on one of these two or three sectors. Growth can be found in any sector, and it happens at different times. And looking at active managers, you have to understand that if they enter into a position at large scale, they're going need to stick with that position even when that company may have temporary slowdowns because it's expensive to get in and out of stocks. So looking at aggressive growth, you're probably going to have to find a manager whose process that you believe in as opposed to looking at a specific area for aggressive growth stocks.
Growth Versus Aggressive Growth
There are more options if you go further down the chain and you look at growth stocks alone, you have indices which offer growth exposure that have large quantities of stocks in them, such as the Russell or potentially the NASDAQ. Those are definitely growth-oriented indices. But if you're looking at the upper end of growth in t hose indices, there's not a lot of good options.
Single Stocks Versus Basket Approach
So you do have to focus on the underlying investment process that's used by managers to actively manage portfolios. And that allows you to spread your bets across a number of different fast-growing companies. Maintaining exposure to aggressive growth, but not maintaining exposure necessarily to any one group of companies. It' s important to recognize that growth occurs in spurts within companies, and anyone company or even any one's sector is not going to be consistently growing through all the different market environments. So, If you had the ideal manager, you would want to find somebody who could follow the growth where itis occurring, but not necessarily be stuck with any one particular stock, because stocks will come into favor and go out of favor during different market cycles and it's very difficult for particularly for an individual investor to be that vigilant and to time, the entry and exit points for those stocks perfectly. So, you're looking at a basket approach. You're probably looking at a concentrated approach to make sure that you're always going to be in aggressive growth stocks, but it's not all going to be in the stock of the same company. You need to have your highest conviction, aggressive growth ideas in the portfolio. And that's where active management comes into play. It's important to maintain exposure to that, but also to be able to shift as the market shifts. Aggressive growth is inherently a trend following a strategy, and it's important that investors can maintain exposure to aggressive growth without having to guess when to get in and when to get out.
Why By Nature Aggressive Growth Funds Are Active Funds
First of all, I have yet to find a passive portfolio using this strategy. Again, because it's under-researched, under-owned, and under-recognized. There's no need to go passive in a strategy which has those limiting attributes. The only thing that we have in aggressive growth is actively managed funds, and because of the aggressive growth mentality where managers are seeking to produce outsized returns, the whole concept of going passive in an aggressive style has probably never been contemplated.
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Please note, that the thoughts expressed in this podcast are those of the presenter. This is not, nor should it be considered an offer or a solicitation of an offer for investment.