After being beaten down badly this year, growth investing has regained momentum in the second half given the renewed appeal for riskier assets. This is especially true as the ultra-popular iShares Russell 1000 Growth ETF IWF has gained 12.6% over the past month against 5.3% for the value counterpart iShares Russell 1000 Value ETF IWD.
While many products have been showing strong momentum, we have highlighted five ETFs that have been outperforming in the space and offers broad exposure to the U.S. equity market rather than a specific sector or industry. Vanguard Mega Cap Growth ETF MGK, Vanguard Growth ETF VUG, Invesco S&P 500 Pure Growth ETF RPG, Schwab U.S. Large-Cap Growth ETF SCHG, and SPDR Portfolio S&P 500 Growth ETF SPYG have been showing strong momentum. These ETFs have and have a top Zacks ETFs Rank #2 (Buy), suggesting their continued outperformance.
Risky Bets Surge
Investors are rotating into beaten-down, high-growth areas like technology, which were at the heart of a sell-off driven by soaring yields and Fed aggressive rate hikes. A drop in Treasury yields and declining commodity prices brought back the lure for riskier assets. Additionally, growth stocks have become cheaply valued after the massive decline early in the year.
Notably, all the three major indices logged in the best July since 2020. The tech-heavy Nasdaq Composite Index was the outperformer, climbing 12.4%, while the Dow Jones and the S&P 500 gained 6.7% and 9.1%, respectively (read: Stocks' Best Month Since 2020: Top ETF Areas of July).
The world's largest economy is poised for a technical recession as GDP shrank by 0.9% in the second quarter, followed by a 1.6% decline in the first quarter. This might prompt the Fed to scale back its interest rate hiking cycle in the fall, resulting in risk-on trade. The central bank raised interest rates by 75 bps last month in the range of 2.25% and 2.5% to fight inflation and hinted that it could slow the pace of its rate hike campaign at some point.
Further, commodity prices have also fallen on recessionary fears, thereby providing a boost to investors’ sentiment.
Growth investing focuses on capital appreciation rather than annual income or dividends. It is a stock-buying strategy that aims to profit from companies that grow at above-average rates compared to their industry or the market. This is a more active attempt versus the value to build up the portfolio and generate more return on the capital investment.
These stocks have more upside potential in the coming months, given a surging stock market and an improving prospect of economic growth. However, these offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility especially compared to value stocks.
Let’s discuss the above-mentioned ETFs in detail below:
Vanguard Mega Cap Growth ETF (MGK) – Up 14.6%
Vanguard Mega Cap Growth ETF tracks the CRSP US Mega Cap Growth Index. It holds 99 securities in its basket, with none accounting for more than 15.2% of the total assets. It has key holdings in technology and consumer discretionary that account for double-digit exposure each (read: 5 Top-Ranked ETFs That Outperformed in July).
Vanguard Mega Cap Growth ETF charges 7 basis points in annual fees and trades in good volume of around 351,000 shares a day on average. The fund has AUM of $11.6 billion.
Vanguard Growth ETF (VUG) – Up 14.2%
Vanguard Growth ETF follows the CRSP US Large Cap Growth Index, holding 260 stocks in its basket, with none accounting for more than 12.7% share. Technology dominates the fund’s portfolio at 48.6%, while consumer discretionary and industrials wound off the next two sectors with a 22.4% and 10.7% share, respectively.
Vanguard Growth ETF has AUM of $76.9 billion and an average daily volume of 1.3 million shares. It charges 4 bps in fees per year.
Invesco S&P 500 Pure Growth ETF (RPG) – Up 14.1%
Invesco S&P 500 Pure Growth ETF offers exposure to the companies that exhibit strong growth characteristics in the S&P 500 Index. It tracks the S&P 500 Pure Growth Index and holds 58 stocks in its basket, with none making up for more than 4.2% of assets. Here again, information technology dominates the portfolio with 37.9% of its assets, while healthcare, consumer discretionary and financials round off the next three spots with double-digit exposure each (read: Tech ETFs Make A Solid Comeback in July).
Invesco S&P 500 Pure Growth ETF has amassed $2.4 billion in its asset base and trades in a good average volume of around 125,000 shares a day. The product charges 35 bps in fees a year from investors.
Schwab U.S. Large-Cap Growth ETF (SCHG) – Up 13.9%
With AUM of $15 billion, Schwab U.S. Large-Cap Growth ETF follows the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. It holds 228 stocks in its basket, with a large concentration on the top two firms. From a sector look, information technology takes the top spot at 48.1% share while health care, consumer discretionary and communication services receive double-digit exposure each in the portfolio.
Schwab U.S. Large-Cap Growth ETF charges 4 bps in annual fees and sees an average volume of around 1.3 million shares a day.
SPDR S&P 500 Growth ETF (SPYG) – Up 13.4%
SPDR S&P 500 Growth ETF follows the S&P 500 Growth Index, holding 240 stocks in its basket with a heavy concentration on the top two firms. It is heavy on the information technology sector with a 45% allocation, while consumer discretionary, healthcare, and communication services round off the next three spots.
SPDR S&P 500 Growth ETF has amassed $14.4 billion in its asset base and charges investors 4 bps in annual fees. Volume is good, exchanging about 2.7 million shares a day on average.
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iShares Russell 1000 Growth ETF (IWF): ETF Research Reports
iShares Russell 1000 Value ETF (IWD): ETF Research Reports
Invesco S&P 500 Pure Growth ETF (RPG): ETF Research Reports
Vanguard Growth ETF (VUG): ETF Research Reports
Schwab U.S. LargeCap Growth ETF (SCHG): ETF Research Reports
Vanguard Mega Cap Growth ETF (MGK): ETF Research Reports
SPDR Portfolio S&P 500 Growth ETF (SPYG): ETF Research Reports
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