Growth funds focus on cutting-edge companies.
There are many reasons for investors to focus on growth in their portfolios. “Growth has had a rip-roaring trajectory for the past decade,” says Jeffrey Malcom, portfolio manager at Buttonwood Financial Advisors. Of course, this doesn’t mean investors should solely be looking to hold individual growth stocks. These offerings can be volatile. To get exposure to the sector without the risk associated with growth stocks, many investors could benefit from a good growth exchange-traded fund. The key, however, to owning growth ETFs is to make sure they have the right qualities. Garrett Aird, vice president of investment management and research at Northwestern Mutual, says a good growth ETF should be cheap and have plenty of volume and assets. Here are seven great growth ETFs for investors to buy and hold for the long term.
Vanguard Growth ETF (ticker: VUG)
With $83 billion in assets under management, VUG is by far the largest ETF included on this list of the best growth funds. And when it comes to liquidity, size matters, as larger funds are easier to get in and out of. Founded in January 2004, this passively managed fund has a 10-year average total return of 16.4% and tracks the CRSP U.S. Large Cap Growth Index. With an expense ratio of only 0.04%, or $4 for every $10,000 invested annually, VUG is an excellent choice for affordable exposure to large-cap growth stocks. As with many funds in this asset class, however, VUG has more than 50% of its total assets invested in tech. The fund’s top five holdings as of the beginning of March were Apple Inc. (AAPL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOG, GOOGL) and Tesla Inc. (TSLA). Aird says, “One thing you’ll notice from a growth ETF is they’ll have a heavier allocation of technology companies.” That certainly holds true for this list.
iShares Russell Mid-Cap Growth ETF (IWP)
As the only mid-cap growth fund included in this list, IWP culls through 800 securities in the Russell 1000 Index. From these securities, its parameters of earnings and sales growth then determine roughly the top 400 mid-cap growth stocks to include in IWP’s holdings. As of this writing, the fund holds 389 stocks. Of these, about 12% of its total assets are invested in its top 10 holdings. Its top five holdings — accounting for roughly half of that — are Palo Alto Networks Inc. (PANW), DexCom Inc. (DXCM), Idexx Laboratories Inc. (IDXX), Fortinet Inc. (FTNT) and Cadence Design Systems Inc. (CDNS). Again, even when it comes to mid-cap stocks, growth funds are heavily weighted toward technology. About 35% of IWP’s holdings are tech stocks. This passively managed fund holds about $14 billion in assets and has a 0.23% expense ratio.
Vanguard Russell 1000 Growth ETF (VONG)
VONG differs from the other Russell 1000 offerings included in this list in that it tracks the entire Russell 1000 Growth Index. Not surprisingly, however, its top five holdings are all large-cap stocks: Apple, Microsoft, Amazon.com, Tesla and Alphabet. Of course, this puts its top holdings squarely in line with VUG. The point at which these two funds differ is in the number of securities each holds. Whereas VUG only holds about 265 companies, VONG includes a massive 503 holdings in its portfolio. With about $8 billion in assets, VONG also is a significantly smaller fund. And it has a higher expense ratio of 0.08%.
Schwab U.S. Large-Cap Growth ETF (SCHG)
One of the major advantages of SCHG is that it makes a “clean split” between growth and value stocks, says D.J. Tierney, senior investment portfolio strategist at Schwab. This isn’t always the case for growth ETFs. And it’s the benchmark index SCHG follows that allows for this ETF to make the split so decisively. SCHG tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. This index uses strict multifactor analysis to determine which large-cap stocks in the U.S. stock market qualify as growth and which are value. In particular, the index tracks the dividend yields of companies. The higher the yield, the more heavily the stock is weighted toward value. SCHG manages about $17 billion in assets, and its expense ratio is 0.04%.
iShares Russell Top 200 Growth ETF (IWY)
Holding only 110 securities, IWY has the second-smallest portfolio of any of the funds included on this list of top growth ETFs. And at only about $5 billion, it also has the fewest assets of any of the ETFs included here. IWY’s top five holdings, like the other large-cap ETFs included in this list, are Apple, Microsoft, Amazon.com, Tesla and Alphabet. This fund distinguishes itself by its specificity. Drawing from only the top 200 largest companies in the Russell 1000, IWY has a very limited pool from which to choose its portfolio. This means 59% of its assets are invested in its top 10 holdings, with about half of that in just Apple and Microsoft. IWY’s expense ratio is 0.2%.
SPDR Portfolio S&P 500 Growth ETF (SPYG)
Building from perhaps the best-known benchmark in the investing world, SPYG passively tracks growth stocks in the S&P 500. And as Matthew Bartolini, head of SPDR Americas Research, says, the methodology of this benchmark and this fund means investors won’t find any “zombie stocks” in the ETF. Zombie stocks are companies that earn enough money to stay in business but not enough to pay off their debt. To be included in the S&P 500, a firm has to have cumulative positive earnings for the previous four quarters and the most recent quarter. Therefore, all the stocks in this index have positive earnings growth. Significantly smaller than SPDR’s flagship S&P 500 ETF Trust (SPY), SPYG has about $14 billion under management and a 0.04% expense ratio.
Vanguard Mega-Cap Growth ETF (MGK)
With only 102 holdings, MGK has the smallest portfolio of any of the funds included on this list. Like IWY, MGK draws from a focused universe. Tracking the CRSP U.S. Mega-Cap Growth Index, MGK’s benchmark index comprises only companies worth at least $40 billion. However, when it comes to growth stocks, this still means MGK has about 43% of its holdings in the tech sector. Once again, MGK’s top-five holdings, which include about 50% of its total holdings, are Apple, Microsoft, Amazon.com, Alphabet and Tesla shares. MGK has an expense ratio of 0.07%.
7 best growth funds to buy and hold:
— Vanguard Growth ETF (VUG)
— iShares Russell Mid-Cap Growth ETF (IWP)
— Vanguard Russell 1000 Growth ETF (VONG)
— Schwab U.S. Large-Cap Growth ETF (SCHG)
— iShares Russell Top 200 Growth ETF (IWY)
— SPDR Portfolio S&P 500 Growth ETF (SPYG)
— Vanguard Mega-Cap Growth ETF (MGK)
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Update 04/01/22: This story was published at an earlier date and has been updated with new information.