Just when it looked like value stocks were the place to be, growth stocks have perked up. And ETFs offer investors a way to play this trend.
The SPDR Portfolio S&P 500 Growth ETF (SPYG) is up 5.4% over the past 50 trading days. That puts it well ahead of the SPDR Portfolio S&P 500 Value ETF (SPYV), which is down 3.2% during that time. Growth stocks haven’t outperformed value by such a wide margin since August 2021, says Nicholas Colas of DataTrek Research.
“Growth has outperformed value by a statistically unusual amount over the last 50 days in both U.S. large and small caps,” Colas said.
Where Growth’s Strength Is Coming From
Much of the recent outperformance of growth in the past 50 trading days is coming from the consumer discretionary and technology sectors.
The Consumer Discretionary Select Sector SPDR ETF (XLY) is up more than 8% during that time. That’s a larger gain than by any of the 11 S&P 500 sectors. Meanwhile, the Technology Select Sector SPDR ETF (XLK) is up 4.5% in the past 50 days. It’s a tech bump S&P 500 investors patiently waited for all year.
For instance, Enphase Energy (ENPH), a pure growth technology play in sustainable energy, has seen its shares rise more than 110% in the past 50 trading days. And pure growth company and auto parts seller AutoZone (AZO) has seen its shares zoom 55.6% higher in the past 50 days.
But how can you capture some of these gains by growth stocks? ETFs are a diversified way to add growth to your portfolio.
Picking S&P 500 Growth ETFs
It’s first important to understand the investment rationale of growth stocks now, says Todd Rosenbluth, head of research at VettaFi. And that boils down to moves the Federal Reserve is making.
“With inflationary pressure beginning to wane and investors more confident that the Federal Reserve is going to be able avoid a recession, risk taking growth strategies are being rewarded,” Rosenbluth said.
Don’t make the mistake, though, of thinking all ETFs with the word “growth” in their name are interchangeable. “Not all growth ETFs are constructed the same,” according to Rosenbluth.
The largest U.S. large-cap growth ETF, the $76.9 billion-in-assets Vanguard Growth ETF (VUG) is also among the cheapest. Its annual fee is just 0.04%. But it’s also among the top performing this year, up more than 6%. It’s passively managed, but based on an index that filters for growth companies. The measures that companies must pass to be in the ETF include long-term expected profit growth and return on assets. More than 250 companies fit the ETF’s requirements.
The next two largest growth ETFs also warrant a look, Rosenbluth says. But they’re very different. “iShares S&P 500 Growth ETF (IVW) and iShares Russell 1000 Growth ETF (IWF) are both market-cap weighted growth ETFs with hefty concentrations in Apple (AAPL), Microsoft (MSFT) and Amazon.com (AMZN),” he said. “But there are differences between them. For example, IVW owns a top 10 stake in Meta Platforms (META), but the stock is not owned by IWF.”
Know The Risks To Growth
Before jumping into growth ETFs, though, Colas offers caution. When growth pulls ahead with as much fervor as it is now, value stocks tend to stage a comeback, Colas says. “It can take a month or two (as in 2020) or occur quickly (as in 2021), but value does come back into favor,” he said. “Health care, industrials and financials are the key sectors to play a bounce in value names.”
Largest Growth ETFs
All are outperforming the 3.2% drop in S&P 500 value stocks this year
|ETF||Symbol||Assets ($ billions)||Expense ratio||50-day stock % ch.|
|iShares Russell 1000 Growth||(IWF)||63.9||0.18%||5.2%|
|iShares S&P 500 Growth||(IVW)||31.5||0.18%||5.6%|
|Schwab U.S. Large-Cap Growth||(SCHG)||15.1||0.04%||7.0%|
|SPDR Portfolio S&P 500 Growth||(SPYG)||14.4||0.04%||5.4%|
|Vanguard Mega Cap Growth||(MGK)||11.7||0.07%||6.5%|
|Vanguard Russell 1000 Growth||(VONG)||7.5||0.08%||5.3%|
|Vanguard S&P 500 Growth||(VOOG)||7.1||0.10%||5.5%|
|iShares Russell Top 200 Growth||(IWY)||4.8||0.20%||5.0%|
|Invesco S&P 500 Pure Growth||(RPG)||2.5||0.35%||3.6%|
Sources: IBD, S&P Global Market Intelligence, ETF.com
Follow Matt Krantz on Twitter @mattkrantz
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