Growth exchange-traded funds (ETFs) are one of two broad categories of ETFs, the other being value ETFs. Growth ETFs are designed to invest in a basket of stocks whose underlying companies have the potential for rapid growth, as opposed to stocks whose prices are relatively undervalued. Growth companies in these funds include Microsoft Corp. (MSFT), DocuSign Inc. (DOCU), and Micron Technology Inc. (MU), among others.
These ETFs can provide above-average returns, but they also carry more risk because fast growth tends to be accompanied by higher volatility, especially during times of economic weakness. These ETFs may not be the best vehicles for investors looking for regular investment income. That’s because many growth companies reinvest their earnings in future growth instead of paying dividends to their shareholders.
- Growth stocks slightly underperformed the broader market over the past year.
- The exchange-traded funds (ETFs) with the best one-year trailing total returns are SPHQ, FQAL, and LEAD.
- The top holdings of the first two funds are Apple Inc., and the top holding of the third is Class A shares of Mastercard Inc.
There are 78 smart beta growth ETFs that trade in the United States, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). Smart beta is a type of investing strategy that offers benefits from both passive and active investing. Smart beta funds seek to passively track an index while at the same time using alternative weighting schemes based on liquidity, momentum, value, growth, or other characteristics typical of factor investing.
Growth stocks, as measured by the S&P 500 Growth Index, slightly underperformed the broader market over the past year. The index provided a one-year trailing total return of 10.2% compared to the S&P 500’s one-year trailing total return of 13.0%, as of Feb. 17, 2022. The best-performing growth ETF, based on performance over the past year, is the Invesco S&P 500 Quality ETF (SPHQ).
We examine the three best growth ETFs below. All numbers and data below are as of Feb. 17, 2022, except for the top holdings of LEAD, which are as of Feb. 18, 2022.
- Performance Over One-Year: 15.0%
- Expense Ratio: 0.15%
- Annual Dividend Yield: 1.22%
- Three-Month Average Daily Volume: 1,296,934
- Assets Under Management: $3.9 billion
- Inception Date: Dec. 6, 2005
- Issuer: Invesco
SPHQ seeks to track the S&P 500 Quality Index, which is comprised of stocks in the S&P 500 ranked based on return on equity, accruals ratio, and financial leverage ratio. The fund focuses primarily on large-cap stocks, with information technology companies occupying the largest portion of the portfolio. Financials and healthcare stocks represent the next-largest segments. The top holdings of SPHQ include Apple Inc. (AAPL), a technology company that sells PCs, mobile devices, and services; Class A shares of Visa Inc. (V), a financial services and electronic fund transfers company; and JPMorgan Chase & Co. (JPM), a major financial services company and investment bank.
- Performance Over One-Year: 14.6%
- Expense Ratio: 0.29%
- Annual Dividend Yield: 1.23%
- Three-Month Average Daily Volume: 47,819
- Assets Under Management: $258.6 million
- Inception Date: Sept. 12, 2016
- Issuer: Fidelity
FQAL aims to track the Fidelity U.S. Quality Factor Index, comprised of stocks of large and mid-capitalization U.S. companies with a higher quality profile than the broader market. The index ranks companies based on a variety of factors, including profitability, balance sheet, and cash flow stability. The fund may appeal to investors looking to combine a quality-focused approach with a U.S.-specific methodology. FQAL focuses primarily on large-cap stocks. The top holdings of FQAL include Apple, described above; Microsoft Corp., a technology, software, and consumer electronics company; and Class A shares of Alphabet Inc. (GOOGL), a major technology company and owner of the world's largest search engine.
- Performance Over One-Year: 13.0%
- Expense Ratio: 0.43%
- Annual Dividend Yield: 0.80%
- Three-Month Average Daily Volume: 6,445
- Assets Under Management: $56.8 million
- Inception Date: Jan. 6, 2016
- Issuer: SRN Advisors
LEAD tracks the Siren DIVCON Leaders Dividend Index, an index comprised of large-cap companies estimated to have the highest probability of increasing their dividend in the next 12 months. The index utilizes DIVCON methodology including a variety of qualitative factors in an effort to determine which companies within the S&P 500 have the highest probability of increasing their dividends. The top holdings of LEAD include Class A shares of Mastercard Inc. (MA), the financial services company; Nordson Corp. (NDSN), a maker of dispensing equipment for adhesives, sealants, and coatings; and Sherwin-Williams Co. (SHW), a paint and coating company.
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