Growth exchange-traded funds (ETFs) are one of two broad categories of ETFs, the other one 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 into future growth instead of paying dividends to their shareholders.
- Growth stocks slightly outperformed the broader market over the past year.
- The exchange-traded funds (ETFs) with the best one-year trailing total return are PSI, FYC, and PTF.
- The top holdings of these ETFs are Advanced Micro Devices Inc., Translate Bio Inc., and EPAM Systems Inc., respectively.
There are 76 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 outperformed the broader market over the past year. The index provided a one-year trailing total return of 35.3% compared to the S&P 500’s one-year trailing total return of 34.9%, as of Aug. 16, 2021. The best-performing growth ETF, based on performance over the past year, is the Invesco Dynamic Semiconductors ETF (PSI).
We examine the three best growth ETFs below. All numbers below are as of Aug. 16, 2021.
- Performance Over One-Year: 54.3%
- Expense Ratio: 0.57%
- Annual Dividend Yield: 0.14%
- Three-Month Average Daily Volume: 46,086
- Assets Under Management: $662.4 million
- Inception Date: June 23, 2005
- Issuer: Invesco
PSI seeks to track the Dynamic Semiconductor Intellidex Index, which is composed of 30 U.S. semiconductor companies that have been screened using a variety of investment factors, including price and earnings momentum, quality, management action, and value. The ETF invests at least 90% of its assets in the stocks that make up the index. It provides exposure to companies that are primarily engaged in the manufacturing of semiconductors. The multi-cap fund invests in both value and growth stocks, but it tilts more toward the latter. Its top three holdings are Advanced Micro Devices Inc. (AMD), Qualcomm Inc. (QCOM), and Broadcom Inc. (AVGO), all of which are semiconductor manufacturers.
- Performance Over One-Year: 50.3%
- Expense Ratio: 0.71%
- Annual Dividend Yield: 0.10%
- Three-Month Average Daily Volume: 43,754
- Assets Under Management: $386.8 million
- Inception Date: April 19, 2011
- Issuer: First Trust
FYC aims to track the Nasdaq AlphaDEX Small Cap Growth Index, which is composed of stocks from the Nasdaq U.S. 700 Small Cap Growth Index that meet a certain set of investment criteria, including price momentum, sales-to-price ratio, and sales growth. The ETF provides exposure to small-cap stocks with high growth potential. The information technology sector receives the largest allocation, followed by healthcare and consumer discretionary. Its top three holdings are Translate Bio Inc. (TBIO), a messenger ribonucleic acid (mRNA) therapeutics company; Atkore Inc. (ATKR), a manufacturer of metal products and electrical raceway solutions; and Perficient Inc. (PRFT), a global digital consulting firm.
- Performance Over One-Year: 49.8%
- Expense Ratio: 0.60%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 11,531
- Assets Under Management: $280.7 million
- Inception Date: Oct. 12, 2006
- Issuer: Invesco
PTF tracks the Dorsey Wright Technology Technical Leaders Index, which identifies stocks exhibiting strong momentum and is composed of a minimum of 30 securities from the Nasdaq U.S. Benchmark Index. The index uses relative strength to gauge a stock’s momentum. The ETF generally invests at least 90% of its assets in securities that make up the index. The software industry receives the largest allocation in the fund, followed by the semiconductor and IT services industries.
PTF invests in companies across the market-cap spectrum and is biased toward companies with strong growth potential, as opposed to those with strong value characteristics. Its top three holdings are EPAM Systems Inc. (EPAM), a global provider of digital platform engineering and software development services; Intuit Inc. (INTU), a developer of business and financial management software solutions; and class A shares of Cloudflare Inc. (NET), a global cloud services provider.
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