When it comes to investing, investors can slice and dice their portfolios in a variety of ways to suit their particular views or theses on what they expect to outperform. For example, tilts toward a particular geography of stocks, such as U.S. stocks, or toward a specific sector, such as technology, are common.
Another common tilt is toward equity styles, a categorization scheme used to distinguish stocks with different traits. For example, consider the split between large- versus small-cap stocks, or the difference between value versus growth stocks.
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So far in 2023, attention has been on growth stocks thanks to stellar earnings reports from notable U.S. tech sector players like Apple Inc. (ticker: AAPL), Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL, GOOG) and Nvidia Corp. (NVDA). Growth investors have flocked to these stocks, expecting their earnings and revenues to continue to grow at an above-average pace relative to their sector peers. A cooling of inflation and a soaring demand for exposure to artificial intelligence stocks have also contributed to the rise in growthy tech names in particular.
However, growth stocks aren’t a surefire way to beat the market. Focusing on this specific equity style comes with unique risks. In the ecosystem of growth stocks, high price-to-earnings and price-to-book ratios are commonplace. Thus, investors run the risk of paying too much for a growth stock, which can bode poorly for future expected returns.
“While earnings may remain positive, the risk associated with growth stocks is overpaying for future growth,” says Adam Grossman, global equity chief investment officer at RiverFront Investment Group. “This contrasts with value stocks, where the primary risk is stepping into a distressed situation that does not improve.”
This risk can be significantly lessened by diversifying. By buying a broad basket of growth stocks, investors can significantly reduce the probability of overpaying for a single growth stock, or going down with the ship should the stock pick not pan out. To achieve this level of diversification, investors can buy a growth stock exchange-traded fund, or ETF.
“For example, in 2022, an equal-weight portfolio of the top growth stocks such as Meta Platforms Inc. (META), Apple, Amazon.com Inc. (AMZN), Netflix Inc. (NFLX), Alphabet and Microsoft were down a combined 45.3%, while the Russell 1000 Growth ETF (IWF) was down only 29.3%,” says Geoffrey Strotman, senior vice president at investment consultancy Segal Marco Advisors. “This was due to the diversification that came with holding a portfolio with over 500 different growth stocks.”
Keeping that in mind, here’s a look at seven of the best growth ETFs to buy in 2023:
| Growth ETF | Expense Ratio |
| Vanguard Growth ETF (VUG) | 0.04% ($4 annually per $10,000 invested) |
| Vanguard Mega Cap Growth ETF (MGK) | 0.07% |
| Invesco QQQ Trust Series 1 (QQQ) | 0.2% |
| Invesco NASDAQ 100 ETF (QQQM) | 0.15% |
| Invesco S&P 500 GARP ETF (SPGP) | 0.33% |
| SPDR Portfolio S&P 500 Growth ETF (SPYG) | 0.04% |
| Schwab U.S. Large-Cap Growth ETF (SCHG) | 0.04% |
Vanguard Growth ETF (VUG)
“For a passively managed growth ETF, the most important factor is fees,” Strotman says. A popular low-cost pick here is VUG, which passively tracks the CRSP US Large Cap Growth Index. By doing so, VUG provides exposure to 240 of the largest U.S.-listed growth stocks, including names like Apple, Microsoft, Amazon, Nvidia, Alphabet and Tesla Inc. (TSLA
).
Unsurprisingly, VUG heavily tilts toward technology, with 51% of its portfolio concentrated in stocks from this sector. The ETF’s second-highest sector exposure comes from consumer discretionary stocks, which make up 21% of its portfolio. Both sectors have historically been more sensitive to macroeconomic variables than more resilient, value-oriented ones like consumer staples or health care.
Vanguard Mega Cap Growth ETF (MGK)
For even more concentrated exposure to the largest U.S. growth stocks, investors can forgo VUG for MGK. This Vanguard ETF tracks the CRSP US Mega Cap Growth Index, which currently holds 96 of the largest U.S.-listed growth stocks. Technology stocks make up 55% of this ETF, with Apple and Microsoft together dominating the top holdings with a greater than 30% aggregate weighting.
“The growth index ETFs are typically heavily exposed to momentum in markets,” Strotman says. “Thus, stocks that have done the best recently have increasingly higher weights.” This can be beneficial during bull markets but can cause greater downside risk during bear markets. Investors should keep this in mind before considering concentrated ETFs like MGK. The ETF charges a 0.07% expense ratio.
Invesco QQQ Trust Series 1 (QQQ)
A popular growth- and tech-heavy benchmark is the Nasdaq-100, a market-cap-weighted index of the largest 100 nonfinancial stocks listed on the Nasdaq Stock Market. “Over the last 10 years, the Nasdaq-100 has strongly outperformed the S&P 500, largely thanks to the outperformance of Meta Platforms, Apple, Netflix, Microsoft and Amazon,” says Ryan McCormack, senior factor and core ETF strategist at Invesco.
A popular pick for passively tracking the Nasdaq-100 is QQQ, which is one of the largest U.S. ETFs with around $200 billion in assets under management. The ETF is highly liquid, with a large daily trading volume, tiny bid-ask spread and a well-developed options chain, making it great for traders. However, it does charge a higher expense ratio of 0.2%.
[READ: 10 ETFs to Build a Diversified Portfolio.]
Invesco NASDAQ 100 ETF (QQQM)
For buy-and-hold
investors, Invesco offers QQQM as an alternative. “QQQM was launched in October 2020, and while it tracks the same index as QQQ, the ETF’s 25% lower expense ratio and structural advantages such as securities lending and dividend reinvestment at the fund level make it a better choice for investors looking for long-term Nasdaq-100 exposure,” McCormack says.
Compared to QQQ, QQQM possesses much lower, but still sizable, assets under management of $13.8 billion. However, it charges a lower 0.15% expense ratio. Long-term investors who don’t require options trading or high trading volume can buy QQQM in lieu of QQQ to save on fees. The ETF is also very tax efficient thanks to its low 30-day SEC yield of just 0.6%.
Invesco S&P 500 GARP ETF (SPGP)
“In the case of growth stocks, we would argue that higher interest rates will have a disproportionate impact on less profitable growth companies, while companies that have consistently grown sales and delivered that to shareholders through earnings that exceed the cost of rising rates will be rewarded,” Grossman says. “Thus, we think getting high sustainable growth is the most important thing to do.”
An ETF that invests along these lines is SPGP, which tracks the S&P 500 Growth at a Reasonable Price, or GARP, index. This index selects the top 75 stocks from the broader S&P 500 that have been identified as having the best growth, value and quality composite scores. The result is a portfolio less concentrated in a select handful of large-cap tech stocks. SPGP charges a 0.33% expense ratio, the highest on this list.
SPDR Portfolio S&P 500 Growth ETF (SPYG)
A very straightforward ETF for tracking growth stocks is SPYG, which tracks the S&P 500 Growth Index. This index takes the broader S&P 500 and isolates the stocks displaying the strongest growth characteristics as determined by sales growth, momentum, and the ratio of earnings change to price. Currently, SPYG sports 233 holdings, 37% of which come from the technology sector.
Again, it’s the usual suspects, with Apple, Microsoft, Nvidia, Alphabet and Tesla populating the top five holdings of this ETF. Apple, the largest weighting, has a more than 14% allocation. The few nontechnology growth stocks represented in SPYG’s top holdings currently include UnitedHealth Group Inc. (UNH), Exxon Mobil Corp. (XOM) and Visa Inc. (V). SPYG charges a low 0.04% expense ratio, the same as VUG.
Schwab U.S. Large-Cap Growth ETF (SCHG)
Another low-cost option for tracking the largest U.S.-based growth stocks is SCHG. By using the Dow Jones U.S. Large-Cap Growth Total Stock Market Index, SCHG provides exposure to 245 growth stocks for a 0.04% expense ratio. Despite its different index, SCHG holds a similar portfolio compared to VUG and SPYG, with top holdings including Apple, Microsoft, Amazon, Nvidia, Tesla and Alphabet.
Thus, given their similar holdings and fees, yet different benchmark indexes, investors can potentially use SCHG, VUG and SPYG as tax-loss harvesting pairs. Strategically selling one ETF at a loss and immediately purchasing another can help investors obtain a capital loss to deduct against future capital gains or against up to $3,000 of annual income, without running afoul of the wash-sale rule.
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7 Best Growth ETFs to Buy Now originally appeared on usnews.com
Update 07/07/23: This story was previously published at an earlier date and has been updated with new information.
