What Is a Go-Go Fund?
Key takeaways
– A go‑go fund is an informal term for a mutual fund that pursues an aggressive, high‑risk growth strategy—typically concentrated in growth stocks and speculative securities—to try to deliver above‑average returns.
– Go‑go funds were most prominent in the 1960s, when exuberant markets and new retail investors drove demand for aggressive mutual funds; the subsequent crashes of 1969–1970 exposed their vulnerabilities.
– Investors should treat go‑go strategies as high‑risk, use careful due diligence, apply diversification and position‑sizing rules, and understand fees, liquidity and tax consequences before investing.
Understanding go‑go funds
Definition and strategy
– A go‑go fund seeks capital appreciation by overweighting fast‑growing, often speculative stocks instead of prioritizing income, value metrics, or broad diversification.
– Typical characteristics: concentrated portfolios, high turnover, large allocations to small‑ or mid‑cap growth names, and a tolerance for volatility in pursuit of outsized gains.
Why they appealed in the 1960s
– The 1960s saw a surge in retail participation in the stock market and a long bull market. New mutual funds and an appetite for quick growth made aggressive funds popular.
– Promises of exceptional returns and the lure of stock‑market gains attracted many novice investors to these funds.
Historical result and lessons
– After peaking in December 1968, the market fell sharply in 1969–1970; many go‑go funds suffered severe losses because their concentrated growth bets were hit hardest.
– The episode highlighted the risk of prioritizing growth at the expense of risk management and diversification. Regulatory clarifications and increased investor caution reduced the prominence of go‑go funds thereafter.
Sources: Investopedia; SEC retrospective on mutual fund history; John Brooks, The Go‑Go Years.
Special considerations and risks
– Concentration risk: heavy exposure to a few sectors or stocks increases vulnerability to sector downturns.
– Market‑cycle sensitivity: growth and speculative stocks can dramatically underperform in bear markets or rising interest‑rate environments.
– Higher volatility and potential for steep drawdowns.
– Behavioral risk: marketing and recent performance can create chasing behavior among investors.
– Fee and turnover impacts: higher trading and active management can increase costs and tax liabilities, reducing net returns.
– Regulatory and valuation risk: speculative holdings may be harder to value accurately, and regulatory scrutiny can affect strategy execution.
Consequences historically and for modern investors
– Short term: possible rapid gains but also the potential for large capital losses.
– Long term: compounded underperformance if large drawdowns are not recovered or if fees and taxes erode returns.
– Portfolio impact: a sizeable allocation to a go‑go style without offsetting defensive positions can increase overall portfolio volatility and the risk of failing to meet financial objectives.
How to evaluate a go‑go (or aggressive growth) fund — practical steps
1. Confirm strategy and holdings
– Read the prospectus and latest shareholder reports to verify investment objectives and sectors/positions.
– Check the top 10 holdings and their weightings to gauge concentration.
2. Check historical performance across cycles
– Look beyond 1‑year returns. Examine performance through at least one full market cycle, including bear market periods.
– Compare to appropriate benchmarks (e.g., Russell 2000 Growth, MSCI ACWI Growth) and peers.
3. Measure risk characteristics
– Volatility (standard deviation), maximum drawdown, Sharpe ratio, and beta vs. a market index.
– Turnover ratio to estimate trading frequency and related costs.
4. Assess fees and tax implications
– Expense ratio, any performance fees, and estimated tax impact of high turnover.
– For taxable accounts, consider the potential for short‑term capital gains distributions.
5. Manager and process due diligence
– Tenure and track record of the portfolio manager and team.
– Is there a repeatable investment process, or is performance driven by concentrated, opportunistic bets?
6. Liquidity and size considerations
– Fund size can influence the ability to trade small‑cap or illiquid holdings.
– Understand redemption policies and any gates/locks for specialized vehicles.
7. Stress test allocation
– Model hypothetical losses (e.g., 30–50% drawdown) and determine whether you can tolerate that outcome and maintain long‑term plans.
Practical steps for investors (how to use or avoid go‑go funds)
– If you want exposure:
1. Limit allocation: keep go‑go exposure to a small percentage of total portfolio (commonly 5–15%, depending on risk tolerance and time horizon).
2. Size positions prudently: avoid making the fund a dominant source of retirement wealth.
3. Use dollar‑cost averaging: invest gradually to reduce timing risk.
4. Rebalance regularly: lock in gains and control concentration by rebalancing back to target allocations.
5. Hold for the long term only if you can tolerate large volatility and have a long investment horizon.
– If you want to avoid:
1. Choose diversified, low‑cost index or value‑tilted funds.
2. Use multi‑asset strategies or target‑date funds that manage risk across market cycles.
3. Focus on funds with robust risk controls and clear valuation disciplines.
Red flags to watch for
– Extremely high recent returns paired with little information about the process.
– Very concentrated top holdings with single positions >5–10% of assets.
– High turnover with minimal disclosure on trading rationale.
– Frequent changes in management or strategy without shareholder communication.
– Marketing that emphasizes “guaranteed” or “unusually large” returns (promises are a warning sign).
Alternatives to a go‑go fund
– Broad market index funds or ETFs for diversified growth exposure.
– Growth‑tilted ETFs with transparent holdings and typically lower fees.
– Balanced funds or multi‑asset funds that combine growth exposure with risk management.
– Factor or smart‑beta strategies that target growth but control volatility or valuation risks.
Regulatory and historical context (brief)
– The go‑go era’s collapses prompted both investor caution and regulatory attention. The SEC and other regulators clarified rules on disclosure, valuation, and fraud to protect investors.
– The episode is often cited as a lesson about speculative manias, concentration risk, and the importance of diversification (see SEC and historical accounts such as John Brooks’ The Go‑Go Years).
Conclusion
Go‑go funds are high‑risk, high‑reward vehicles that can produce impressive returns in strong markets but can also suffer dramatic losses. Investors should perform disciplined due diligence, keep allocations modest, use diversification and rebalancing, and focus on long‑term planning rather than chasing short‑term performance.
References and further reading
– Investopedia. “Go‑Go Fund.” https://www.investopedia.com/terms/g/go-go-fund.asp
– U.S. Securities and Exchange Commission. “Remembering the Past: Mutual Funds and the Lessons of the Wonder Years.” (accessed July 9, 2021). https://www.sec.gov/ (searchable resource on the SEC site)
– Brooks, John. The Go‑Go Years: The Drama and Crashing Finale of Wall Street’s Bullish 60s. John Wiley & Sons, 1999.
If you’d like, I can:
– Walk through a checklist tailored to a specific mutual fund ticker you’re considering.
– Model how a 30% drawdown in a go‑go holding would affect your overall portfolio.