In 2023, the investment landscape was dominated by the extraordinary performance of a select group of mega-cap stocks, referred to as the “Magnificent 7.”
An equally weighted portfolio consisting of Apple Inc. (ticker: AAPL), Alphabet Inc. (GOOG, GOOGL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Meta Platforms Inc. (META), Tesla Inc. (TSLA) and Nvidia Corp. (NVDA) returned about 112% on average from January 2023 through December 2023. In contrast, the S&P 500 Index only returned 24.2% over the same period.
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These seven companies share a common characteristic: They are all quintessential growth stocks. They stand out due to significant investments in research and development, rapidly increasing earnings and revenue, and high valuations. Moreover, they hold commanding positions in their respective industries, wielding substantial competitive advantages and drawing widespread coverage.
However, while the allure of these high-flying stocks is undeniable, betting on the Magnificent 7 to continuously outperform in perpetuity may not be a prudent strategy. The investment landscape is replete with examples like Netflix Inc. (NFLX), a once-favored growth stock that eventually fell out of favor. This volatility underscores the risk inherent in relying on a few select stocks.
Given these considerations, the most effective strategy to harness the potential of growth stocks may not lie in individual stock picking. Instead, a more strategic approach involves capturing the broader growth stock style through exchange-traded funds, or ETFs, and mutual funds.
These investment vehicles offer diversified exposure to a spectrum of growth stocks, thereby potentially reducing the risk while still positioning investors to benefit from their dynamic performance.
Here are seven of the best growth funds to buy and hold in 2024:
| Fund | Expense ratio |
| Vanguard Growth Index Fund Admiral Shares (VIGAX) | 0.05% |
| Schwab U.S. Large-Cap Growth Index Fund (SWLGX) | 0.035% |
| Fidelity Blue Chip Growth Fund (FBGRX) | 0.69% |
| Invesco S&P 500 GARP ETF (SPGP) | 0.34% |
| Invesco QQQ Trust (QQQ) | 0.2% |
| Vanguard Mega Cap Growth ETF (MGK) | 0.07% |
| SPDR Portfolio S&P 500 Growth ETF (SPYG) | 0.04% |
Vanguard Growth Index Fund Admiral Shares (VIGAX)
“Since some growth stocks typically do not generate positive earnings until later in their business stage, metrics such as price-to-earnings, dividend yield and earnings yield tend to be less relevant,” says Mark Andraos, associate portfolio manager at Regency Wealth Management. In contrast, metrics like return on equity, or ROE, and earnings growth rate are more relevant when assessing growth stocks.
Consider VIGAX, which tracks the CRSP U.S. Large Cap Growth Index. Right now, VIGAX is boasting an ROE of 33.6% and and earnings growth rate of 21.1%, compared to 24.6% and 17.2%, respectively, for the Vanguard 500 Index Fund Admiral Shares (VFIAX). This suggests that on average, the stocks in VIGAX are more efficient at utilizing their equity to generate profits and have faster earnings growth.
Schwab U.S. Large-Cap Growth Index Fund (SWLGX)
“Growth stocks have benefited greatly from a decade of near-zero interest rates, as they were able to issue debt at low rates to help fund their operations,” Andraos says. With the Federal Reserve holding the policy interest rate steady for the third consecutive time, some investors are now banking on an eventual pivot and cuts in 2024. As a result, growth stocks could stand to benefit.
Another easy way to capture a broad swath of U.S. growth stocks is via SWLGX, which tracks the Russell 1000 Growth Index. This fund is fairly diversified with 443 holdings, but investors should note that there is a concentration in the technology and consumer discretionary sectors at 42% and 16%, respectively. However, it is affordable and accessible with a 0.035% expense ratio and no minimum investment.
Fidelity Blue Chip Growth Fund (FBGRX)
“For actively managed growth funds, a prospective investor should first look at the fund objective and description to understand if this fund is appropriate for their investing style and risk tolerance,” says Geoff Strotman, senior vice president at Segal Marco Advisors. “They should also understand the track record and experience of the firm and team managing the fund.”
A long-standing actively managed growth fund to watch is FBGRX, which has been around since 1987. Despite charging a fairly high 0.69% expense ratio, this fund has historically been able to beat its benchmark, the Russell 1000 Growth Index. From inception to Dec. 31, 2023, FBGRX has returned an annualized 12.6%. The fund is also available in ETF form as the Fidelity Blue Chip Growth ETF (FBCG).
Invesco S&P 500 GARP ETF (SPGP)
“The Russell 1000 Growth index has 42% of the portfolio in the technology sector and almost 24% weight in the two largest stocks in that sector,” Strotman says. Therefore, growth investors seeking greater exposure to smaller growth stocks, or looking to avoid sector and single-stock concentration risk may not be entirely comfortable with funds tracking that index.
An ETF alternative to consider is SPGP, which tracks the S&P 500 Growth at a Reasonable Price Index. As its name suggests, this ETF only holds growth stocks that also demonstrate adequate value and quality composite metrics. The result is an unusual portfolio of 75 mostly mid-to-large-cap stocks and a high energy sector focus at around 25%. SPGP charges a 0.34% expense ratio.
[6 Best Mid-Cap Tech Stocks to Buy Right Now]
Invesco QQQ Trust (QQQ)
QQQ is a very popular and liquid growth stock ETF with over $226 billion in assets under management, or AUM, and a 30-day average trading volume of over 43 million shares. This ETF tracks the Nasdaq-100 Index, which holds the 100 largest non-financial-sector stocks traded on the Nasdaq exchange. Represented within the top 10 holdings are all of the current Magnificent 7 stocks.
Historically, QQQ has provided a very strong total return, albeit at the cost of high volatility. Over the past 10 years, QQQ has returned 17.7%, aided by the outperformance of the tech sector, mega-cap stocks and growth stocks alike. Investors can buy QQQ for a 0.2% expense ratio, or opt for its cheaper counterpart, the Invesco Nasdaq-100 ETF (QQQM), which charges 0.15%.
Vanguard Mega Cap Growth ETF (MGK)
Critics of QQQ argue that its index’s decision to exclude financial sector stocks and stocks not listed on the Nasdaq exchange is arbitrary and has no economic basis. Investors who agree with this viewpoint may find a broader mega-cap growth ETF to be a viable alternative. A great low-cost option in this space is MGK, which tracks the CRSP U.S. Mega Cap Growth Index for a 0.07% expense ratio.
Two of the most notable growth stocks held by MGK that QQQ omits due to its exclusion of financial sector stocks are Mastercard Inc. (MA) and Visa Inc. (V). Both of these financial technology companies have performed well over the past decade and have a wide moat. By picking MGK over QQQ, investors can ensure exposure to both of these stocks and other growth names left out by the latter.
SPDR Portfolio S&P 500 Growth ETF (SPYG)
Looking to keep fees as low as possible while ensuring high diversification? If you’re a growth investor with these goals in mind, consider SPYG. As part of SPDR’s “Portfolio” lineup of ETFs, SPYG is intended to be a low-cost core building block. Right now, the ETF charges an expense ratio of just 0.04%, which amounts to around $4 in annual fees for a $10,000 investment.
As a passively managed ETF, SPYG tracks its namesake, the S&P 500 Growth Index. This index takes the broad market S&P 500 index as its starting point, and then applies screeners for sales growth, price-to-earnings and momentum. The result is a portfolio of 225 growth stocks, with a 46% and 15% technology and consumer discretionary sector tilt, respectively, and all of the Magnificent 7 stocks in the top holdings.
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7 of the Best Growth Funds to Buy and Hold originally appeared on usnews.com
Update 01/03/24: This story was previously published at an earlier date and has been updated with new information.
