3 Funds With High Treynor Ratio to Whet Your Risk Appetite – May 29, 2020

U.S. consumer confidence improved surprisingly in May, shedding light on the fact that Americans are optimistic about a rebound in the U.S. economy in the near term. The Conference Board reported that the consumer confidence index increased slightly by 0.9 point to 86.6 this month.

Such optimism also stems from the fact that the country is finally beginning to open up and a recovery is in the cards. However, economists believe that it will take a while before economic growth is fully back on track.

Notably, the subindex of expectations, which is based on consumers’ short-term outlook for income, business and labor market conditions, rose to 96.9, for the second month on the trot.

Under such circumstances, risk-loving investors should consider parking their money in mutual funds with high Treynor ratios. Notably, the 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 higher returns generated from high risks.

3 Best Choices

We have, thus, selected three mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000 and each of these funds has a high three-year Treynor ratio.

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 an annual expense ratio of 0.01%, which is below the category average of 1.05%. The fund has three and five-year returns of 25.5% and 18.3%, respectively. FAOFX had a Treynor ratio of 21.53 in the last three years.

Janus Henderson Global Technology and Innovation Fund Class 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 an annual expense ratio of 0.93%, which is below the category average of 1.29%. The fund has three and five-year returns of 21.8% and 19.5%, respectively. JAGTX had a Treynor ratio of 19.14 in the last three years.

Red Oak Technology Select Fund (ROGSX Free Report) 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 an annual expense ratio of 0.95%, which is below the category average of 1.29%. The fund has three and five-year returns of 15.6% and 16.6%, respectively. ROGSX had a Treynor ratio of 14.02 in the last three years.

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