Seek growth with less risk.
Growth investing is one of the most popular investment philosophies, and for good reason. Exchange-traded funds provide a great option if you like the appeal of growth stocks but you don’t want to be worried about when to get in before the breakout and when to sell before the stock crashes and gives up those gains. Funds that are diversified across growth-oriented stocks offer investors more profit potential but also some risk protection as they spread your money around hundreds of names. Here are nine ETFs to consider if you like growth but want to avoid stock picking.
SPDR Portfolio S&P 500 Growth ETF (ticker: SPYG)
A simple way to bias your portfolio toward growth stocks is to use this fund that selects the top 300 or so growth names out of the S&P 500 index. Unsurprisingly, you end up getting more technology companies like Amazon.com (AMZN) and health care names like Pfizer (PFE) and fewer sleepy picks like utilities and real estate operators. This subtle twist isn’t sophisticated, but it’ is incredibly cheap. With a rock-bottom expense ratio of 0.04 percent or just $4 annually on every $10,000 invested, you get one of the lowest pricing structures on Wall Street among all ETFs.
Vanguard Mega Cap Growth ETF (MGK)
A different but still affordable way to play growth favorites is this Vanguard fund, which holds about 120 growth stocks. As the name implies, it is biased toward the biggest growth names including Apple (AAPL) and Microsoft Corp. (MSFT), with the typical market cap of nearly all of its holdings north of $50 billion. This fund is particularly attractive to investors looking for growth but still want the stability that the very largest companies on Wall Street provide. It’s only a hair more expensive than the SPYG fund, too, at an expense ratio of 0.07 percent or $7 annually on every $10,000 invested.
iShares Russell 2000 Growth ETF (IWO)
On the other end of the cap spectrum is this iShares fund focused on the Russell 2000 index of small-cap stocks. The Russell index excludes the top 1,000 U.S. corporations by market capitalization and then gathers the next 2,000 companies. (This excludes the entire S&P 500 and then some.) This fund then picks about 60 percent of those stocks based on the companies that exhibit the best growth characteristics. As a result, holdings of this small-cap fund are names like Trade Desk (TTD) and Coupa Software (COUP) — stocks you may not have heard of, but that boast roughly 30 percent revenue growth rates at present.
Vanguard Mid-Cap Growth ETF (VOT)
If you don’t like stocks that are too big or too small, the way you split the difference is this “Goldilocks” Vanguard fund that focuses on mid-sized corporations. The names are more recognizable, such as top holdings Edwards Lifesciences Corp. (EW) or Fiserv (FISV). The 170 holdings are an interesting supplement to your portfolio, however, since they will not overlap most of the large-cap index funds that many investors choose as foundational holdings. It’s not uncommon for the biggest growth-oriented funds own the same big names you already own in other funds, so VOT is a good way to harness that next tier of growth stocks.
Invesco QQQ ETF (QQQ)
More sector-focused, the QQQ fund is benchmarked to the Nasdaq 100 index — the largest 100 companies that trade on the exchange that made a name for itself in the 1990s and early 2000s as the home for innovative tech firms. This includes all of the so-called FANG stocks — Facebook (FB), Amazon.com, Apple, Netflix (NFLX) and Google parent Alphabet (GOOG, GOOGL). There are other stocks, but more than 60 percent of this ETF is focused on tech or related communications stocks. It’s a good way to harness the growth of this sector while still staying a bit more diversified.
iShares US Technology (IYW)
Here’s a dedicated fund for those who want to go all out on tech. This iShares fund holds about 150 of the biggest U.S.-based names in technology and nothing else. And IYW is market-cap weighted, so big tech mega-caps command the lion’s share of the portfolio. Top holdings Microsoft and Apple represent nearly 30 percent of the fund at present between the two of them. Still, it’s undeniable that these picks feature bigger growth potential than many other companies, so the bias is not necessarily a bad thing for some investors.
Health Care Select Sector SPDR Fund (XLV)
While tech is perhaps the first sector many investors think of when looking for growth, health care remains one of the most reliable growth engines on Wall Street. Whether you look at hiring trends, investment returns or even the bleak statistics about ever-increasing costs for patients, it’s clear that there is a sustained long-term uptrend behind health care that few other sectors can match. As a result, XLV is one of the top ETFs with almost $20 billion in assets at present. That leads not only many other growth-oriented funds, but also makes it one of the most widely held ETFs overall.
iShares MSCI EAFE Growth ETF (EFG)
Aside from investing in a sector, another way to seek growth opportunities is to look outside the U.S. This fund is EAFE focused, targeting Europe, Australasia and the Far East, providing different holdings than a typical large-cap U.S. fund. However, these names should still be recognizable to investors. Top holdings at present include pharma mainstay Roche Holdings (RHBBY) and German tech giant SAP (SAP). This is a great way to add growth and diversification. It’s also worth noting most of the holdings are in developed markets, so this fund isn’t overly risky in its pursuit of global growth.
Schwab Emerging Markets Equity ETF (SCHE)
If you really want to chase growth then the geographies you should be looking at are emerging markets — and this Schwab fund, with investments in regions like China, India and Brazil. Top holdings of SCHE include Chinese tech giants Tencent Holdings (TCHEY) and Alibaba Group Holding (BABA). Yes, there is more risk for investors in emerging markets. However, it’s undeniable that these regions also have much larger upside potential thanks to a growing middle class and brisk expansion of technology and services sectors.
9 ways for ETF fans to seek growth
Here are nine of the best ETFs that growth investors can buy:
— SPDR Portfolio S&P 500 Growth ETF (SPYG)
— Vanguard Mega Cap Growth ETF (MGK)
— iShares Russell 2000 Growth ETF (IWO)
— Vanguard Mid-Cap Growth ETF (VOT)
— Invesco QQQ ETF (QQQ)
— iShares US Technology (IYW)
— Health Care Select Sector SPDR Fund (XLV)
— iShares MSCI EAFE Growth ETF (EFG)
— Schwab Emerging Markets Equity ETF (SCHE)
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