Definition of capital appreciation fund

What is a capital appreciation fund?

Capital appreciation, also known as capital gains, refers to the increase in the value of an investment. A capital appreciation fund is a fund that attempts to increase the value of assets primarily through investments in high-growth, high-value stocks. These funds may also be called aggressive growth funds, capital opportunity funds, or capital gains funds.

Understanding capital appreciation funds

Capital appreciation funds are a good option for investors willing to take some additional risks for the potential benefit of above-average market returns. They tend to attract aggressive investors. Investment strategies can vary widely in fund category; however, most funds are invested primarily in a combination of aggressive growth stocks and stocks. These funds are generally more moderate in their investment holdings than aggressive growth equity funds, investing for both long-term and short-term gains with growth and value. These funds may be suitable for moderate investors seeking equity market allocations, as they generally invest in a wide universe of market stocks. They can also provide constant exposure to the equity markets with constant capital appreciation over time. Therefore, they can be a good long-term basic position for a moderate to aggressive part of an investment portfolio.

Key takeaways

  • A capital appreciation fund is a fund that invests in assets, such as high-growth, high-value stocks, that are expected to grow aggressively in value.
  • Capital appreciation funds carry higher risks, but typically offer above-average returns.
  • Capital appreciation funds invest primarily in stocks, such as growth stocks and aggressive growth stocks.
  • These funds also balance the portfolio with value stocks and conservative investment options.

Capital appreciation fund strategies

As the name suggests, capital appreciation funds seek to deliver shareholder value by investing in companies that they believe have appreciated stock prices. Therefore, they are heavily skewed towards equities. They often make aggressive bets on growth stocks while balancing the portfolio with value stocks and a mix of conservative investments for capital preservation. With capital appreciation as the primary goal, these funds typically have a wide universe of stocks in which they invest. Most of the time, investments will be directed to specific regions of the world, with numerous funds investing in US stocks.

Risks of capital appreciation funds

Capital appreciation funds can generally have higher risk characteristics than passive index investments and standard value stock funds. They offer the potential to obtain above-average market returns with the benefit of diversification through active management. This offers investors exposure to a wide range of equity investments. These funds can have broad mandates and flexible investment objectives that may require additional due diligence on the part of investors.

Capital appreciation fund example

Numerous capital appreciation funds are available throughout the investment market. BlackRock’s Capital Appreciation Fund is managed by one of the largest investment managers in the world.

BlackRock Capital Appreciation Fund

BlackRock Capital Appreciation Fund invests in US growth stocks while seeking a balance between growth and risk. The Fund is compared to the Russell 1000 Growth Index. As of June 30, 2021, it slightly outperformed the Russell 1000 Growth Index with a return of 13.1% to date versus 12.99% to date.

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Mark Holland

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