Declines in growth stocks amid inflation and rising interest rates provide a buying opportunity.
Growth stocks are those that are expected by the market to increase their revenues and earnings faster on average than others in the same industry. Think of stocks like Tesla Inc. (ticker: TSLA) and Shopify Inc. (SHOP), which soared during the low-interest-rate environment of 2020-2021. These high-flying stocks tend to hail from the technology and communications sectors, and often exhibit elevated valuations in the form of high price-earnings, price-book and price-sales ratios. However, the high-inflation, rising-rate environment of 2022 has wreaked havoc on their share prices. Many growth stocks are currently trading well below their 52-week highs. Still, investors “bottom fishing” for a good deal can find many growth stocks with solid management, sound balance sheets and good prospects. A more diversified way of speculating in growth stocks could be through an exchange-traded fund, or ETF. Here is a list of seven growth ETFs to buy in 2022.
Vanguard Growth ETF (VUG)
VUG passively tracks the performance of the CRSP US Large Cap Growth Index, which holds a total of 266 large-cap U.S. stocks. The fund is heavily weighted toward the technology sector (49%), with Apple Inc. (AAPL), Microsoft Corp. (MSFT), Alphabet Inc. (GOOG, GOOGL), Tesla, Meta Platforms Inc. (META) and Nvidia Corp. (NVDA) the notable top holdings. The fund is rather top-heavy, with the 10 largest holdings accounting for 51% of the ETF’s weight. With a massive $148 billion in assets under management, or AUM, VUG is one of the most popular growth ETFs available, and for good reason. The expense ratio of VUG is just 0.04%, which is extremely cheap. This works out to around a $4 annual fee for a $10,000 investment.
Expense ratio: 0.04%, or $4 for every $10,000 invested annually
Vanguard Mega Cap Growth ETF (MGK)
Is VUG not large enough for you? If you’re highly bullish on mega-cap U.S. stocks, consider MGK, which passively tracks the performance of the CRSP US Mega Cap Growth Index. MGK is more concentrated than VUG, holding just 108 stocks with a weighted median market cap of $544 billion. The top holdings of MGK are identical to that of VUG, but in larger proportions. In total, the top 10 stocks account for 61% of the ETF, making it very top-heavy. Once again, the technology sector dominates the ETF at 53% of holdings, followed by consumer discretionary at 25%. MGK is less popular than VUG, having attracted AUM of $11.5 billion, and is a touch more expensive with an expense ratio of 0.07%.
Expense ratio: 0.07%
Invesco QQQ ETF (QQQ)
QQQ tracks the performance of the Nasdaq-100 Index, a market-cap-weighted index of the largest 100 nonfinancial stocks listed on the Nasdaq exchange. In recent years, the index has become synonymous with the performance of the U.S. tech sector thanks to the sector’s high representation. Over the last 10 years, the Nasdaq 100 has strongly outperformed the S&P 500 and other market sectors, largely thanks to the outperformance of the so-called FANGMA stocks of Facebook (via parent Meta Platforms), Apple, Netflix Inc. (NFLX), Google (via parent Alphabet), Microsoft and Amazon.com Inc. (AMZN). As a result, QQQ has become immensely popular, with a massive $163 billion in AUM. The ETF has a well-developed options chain thanks to its strong liquidity and volume, and has become an instrument of choice for swing traders and options sellers thanks to its high volatility.
Expense ratio: 0.20%
Proshares Ultra QQQ (TQQQ)
Investors looking for leveraged exposure to the NASDAQ 100 can consider TQQQ. TQQQ offers daily three times leveraged performance based on the returns of QQQ. The key word here is daily. TQQQ only tracks QQQ accurately in terms of day-to-day performance. The ETF is not intended to be held for long periods of time, as compounding and volatility decay can result in significantly different performance. TQQQ is best used as an instrument for day or swing trading thanks to its high volatility. Investors can use TQQQ in lieu of options, futures or margin trading to manage their risk better. The ETF is also significantly more expensive due to its use of leverage, costing an expense ratio of 0.95%.
Expense ratio: 0.95%
ARK Innovation ETF (ARKK)
Managed by renowned fund manager Cathie Wood, ARKK targets companies involved in “disruptive innovation,” with themes such as automation, robotics, artificial intelligence and the Internet of Things represented in its stock picks. Although ARKK is down an enormous 58% year to date through June 10, the ETF was a top performer from 2020 to 2021, beating the Nasdaq-100 and S&P 500 by a large margin. Currently the largest holdings in ARKK include Tesla, Teladoc Health Inc. (TDOC), Zoom Video Communications Inc. (ZM), Roku Inc. (ROKU) and cryptocurrency exchange operator Coinbase Global Inc. (COIN). The ETF remains highly volatile, with intraday swings of 5% or more a common occurrence. ARKK is actively managed, and as a result, the expense ratio is significantly higher than passive funds.
Expense ratio: 0.75%
iShares S&P 500 Growth ETF (IVW)
IVW focuses on the 240 growth stocks contained in the broader S&P 500 index. These tend to be large-cap U.S. equities, once again mostly from the technology sector. The top holdings are nearly identical to that of VUG, and in roughly the same proportions too. The real discernable difference here is in the choice of index. Because IVW uses the S&P name, the ETF can only select growth stocks contained in the S&P 500 index, whereas VUG uses the CRSP index. The difference in performance over time because of this is likely to be minimal, but still worth understanding when it comes to selecting the right ETF. Unfortunately, IVW is less popular and more expensive than VUG, with AUM of $29 billion and an expense ratio of 0.18%.
Expense ratio: 0.18%
iShares Russell 1000 Growth ETF (IWF)
IWF takes a broader, more diversified approach compared to IVW. Instead of just focusing on the subset of growth stocks from the S&P 500, IWF uses the larger Russell 1000 Index instead. This allows the ETF to capture the performance of more mid-cap growth stocks, which adds volatility but creates the potential for higher returns. As a result, the median market cap of IWF is much lower, which may be desirable for growth investors trying to reduce their concentration in large-cap stocks. In terms of composition, IWF holds more stocks than IVW, at 498 versus 240, but has the same top holdings, just in smaller proportions. The ETF is also more popular, having attracted AUM of about $58 billion.
Expense ratio: 0.19%
Seven growth ETFs to buy:
— Vanguard Growth ETF (VUG)
— Vanguard Mega Cap Growth ETF (MGK)
— Invesco QQQ ETF (QQQ)
— Proshares Ultra QQQ (TQQQ)
— ARK Innovation ETF (ARKK)
— iShares S&P 500 Growth ETF (IVW)
— iShares Russell 1000 Growth ETF (IWF)
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7 Best Growth ETFs to Buy Now originally appeared on usnews.com
Update 06/13/22: This story was published at an earlier date and has been updated with new information.
