There are many methods investors use to classify equities. Stocks can be grouped by market capitalization, dividend income or sector, for instance. Each classification represents a separate, uniquely valuable set of information. Two of the most fundamental and widely used classifications are growth and value.
Value stocks are so named because they’re thought to represent an exceptional value proposition for the prospective investor. In other words, a value stock is one that’s selling for a price below what it should actually be worth, according to popular investment ratios. The value investor looks for bargains and buys stocks at a discount to their true value. The hope is that eventually the broader market will discover that inherent value and start buying the stock, driving up the price.
Conversely, growth stocks are thought of as being priced at or near their fair value. The attraction of a growth stock is that it is a mature, well-run company with skilled management and excellent prospects for sales, revenue and earnings growth well into the future. A typical growth stock will have a long track record of success and real potential for more of the same.
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Here’s a list of seven popular growth exchange-traded funds, or ETFs, to buy:
| Fund | Expense Ratio |
| Vanguard Growth ETF (ticker: VUG) | 0.04% |
| iShares Russell 1000 Growth ETF (IWF) | 0.19% |
| iShares Morningstar Growth ETF (ILCG) | 0.04% |
| Fidelity Fundamental Large Cap Growth ETF (FFLG) | 0.38% |
| iShares S&P 500 Growth ETF (IVW) | 0.18% |
| Vanguard Mega Cap Growth ETF (MGK) | 0.07% |
| iShares Russell 2000 Growth ETF (IWO) | 0.24% |
Vanguard Growth ETF (VUG)
The CRSP US Large Cap Growth Index is an equity index that consists of roughly 200 of the most prominent domestic large-cap growth stocks. VUG is a convenient and inexpensive investment that gives investors access to all of the stocks in the index in a single ETF.
The fund uses a passive, full replication strategy in mirroring the index. This accounts for the extraordinarily low expense ratio of just 0.04%. Except for those small expenses, investors can expect VUG to match the performance of the index.
As a category, large-cap growth has been performing quite well. In 2023, VUG returned 46.9%, nearly double the 24.2% return of the S&P 500. VUG has assets of $107.5 billion.
iShares Russell 1000 Growth ETF (IWF)
The Russell 1000 Index is a well-known equity index comprising the 1,000 largest public companies in the U.S. by market cap. The Russell 1000 Growth Index is a subset of the Russell 1000. It is made up of stocks chosen from the Russell 1000, but it only includes companies that qualify as growth stocks by showing consistent revenue and earnings growth and strong price momentum.
IWF is an index ETF that’s based on the Russell 1000 Growth Index. The fund currently has 443 individual holdings. The high number of stocks in the portfolio provides solid diversification across mid- and large-cap market capitalizations. There are no small-cap stocks in the fund.
With an expense ratio of 0.19%, IWF is a reasonably priced, $87 billion fund that all growth investors should think about buying.
iShares Morningstar Growth ETF (ILCG)
Growth-oriented investors looking for exposure to domestic stocks with above-average earnings growth compared to the broad market should also consider ILCG.
ILCG mirrors the Morningstar Large-Mid Cap Broad Growth Index. The fund gives investors exposure to 393 companies that fall solidly into the growth stock category. ILCG is a good ETF for people looking to add a growth component to their investment mix.
By percent weighting, the top three sectors in the fund are information technology, consumer discretionary and communications, at 45.7%, 14.3% and 9%, respectively. The relatively high representation of tech stocks in the portfolio will add to the fund’s volatility but will contribute greatly to capital appreciation when the tech sector outperforms.
This $2 billion fund is passively managed and carries a very low expense ratio of 0.04%.
[SEE: 7 Best Vanguard Funds to Buy and Hold]
Fidelity Fundamental Large Cap Growth ETF (FFLG)
Like IWF, FFLG uses the Russell 1000 Growth Index as its performance benchmark, but it’s not a passively managed index ETF. FFLG is actively managed. Shareholders will benefit from the high-quality professional management Fidelity Investments has been known for since its founding 78 years ago.
Incidentally, FFLG is a new ticker symbol for the fund, which was previously known as Fidelity Growth Opportunity Fund, and formerly traded under the ticker symbol “FGRO.” Investors can rest assured, however, that FFLG will maintain the same growth stock focus and will still seek to outperform its peers and its benchmark.
In another bit of good news, Fidelity also meaningfully lowered the overall expense ratio of the fund, dropping it from 0.59% down to 0.38%. This makes FFLG even more attractive to growth investors. While FFLG’s expense ratio is higher than IWF’s, that’s the price investors pay for an actively managed fund that will try to outperform, not merely match, the returns of the Russell 1000 Growth Index.
iShares S&P 500 Growth ETF (IVW)
IVW is an ETF that’s based on the S&P 500 Growth Index. That 225-stock index is a growth-focused subset of the famous S&P 500, which contains 503 individual stocks.
With a reported expense ratio of 0.18%, IVW is a low-cost ETF that should give investors returns that come very close to replicating those of the underlying index.
About 12.8% of the fund’s $38 billion in assets are currently invested in Microsoft Corp. (MSFT) with another 10.7% being invested in Apple Inc. (AAPL). About 9.1% of the fund is in Nvidia Corp. (NVDA). That red-hot tech stock is a big reason IVW is up 9.4% in 2024 through March 5. While diversified across its 225 holdings, the fund is top-heavy, which has been a blessing to investors thus far this year, as IVW has heavy exposure to the Magnificent 7 stocks that continue to drive returns.
Vanguard Mega Cap Growth ETF (MGK)
MGK is a $17 billion ETF designed to closely track the performance of the CRSP US Mega Cap Growth Index. It’s a passively managed index fund perfect for the retail investor who wants targeted exposure to the largest publicly traded growth companies in the U.S.
MGK has a similarly managed sister fund, the Vanguard Mega Cap Growth Index Fund Institutional Shares (VMGAX) which is an open-ended mutual fund for large institutional investors such as banks, insurance companies and pension funds.
To be a mega-cap stock is to be one of the biggest companies in the the U.S.; technically, mega-cap stocks are only companies with market capitalizations of $200 billion or more. All things being equal, mega-cap investing should be a more conservative strategy, as these companies are extremely well established and well funded, having proven themselves over many market cycles and economic downturns.
MGK boasts a low expense ratio of only 0.07%.
iShares Russell 2000 Growth ETF (IWO)
Rounding out the list of the best growth ETFs to buy is this small-cap fund. IWO is based on the Russell 2000 Growth Index, which is a growth-oriented offshoot of the Russell 2000 Index. It’s made up of small-cap domestic stocks that have the qualities of growth stocks. Namely, high revenue and earnings growth are factors prioritized in selecting these components.
Because it’s an index fund, investors can expect reasonable fees and expenses. IWO fits that bill with an expense ratio of 0.24% That’s higher than the other index funds on the list, but in line with its small-cap index ETF peers.
IWO is a popular ETF with growth investors who are willing to accept the risk and volatility that comes with small-cap investing. The fund currently has $11.4 billion in assets. As a percentage of assets, information technology, health care and industrials are the top three sectors in the fund, representing 22.4%, 22.1% and 20% of the holdings, respectively.
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7 Best Growth ETFs to Buy Now originally appeared on usnews.com
Update 03/06/24: This story was previously published at an earlier date and has been updated with new information.
