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), Enphase Energy Inc. (ENPH), and Snap Inc. (SNAP), among others. While these ETFs can provide above average returns, 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 underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are FYC, RZG, and PSI.
- The top holdings of these ETFs are B. Riley Financial Inc., MarineMax Inc., and Applied Materials Inc., respectively.
There are 89 distinct growth ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). This group of funds all employ a smart beta strategy, providing the benefits of 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, underperformed the broader market in the past year. The index has provided 1-year trailing total returns of 40.2% as of May 11, 2021, while the S&P 500's 1-year trailing total return is 50.0% as of May 6, 2021. The best-performing growth ETF, based on performance over the past year, is the First Trust Small Cap Growth AlphaDEX Fund (FYC). We examine the 3 best growth ETFs below. All numbers below are as of May 11, 2021, except where otherwise noted.
- Performance over 1-Year: 78.2%
- Expense Ratio: 0.71%
- Annual Dividend Yield: 0.11%
- 3-Month Average Daily Volume: 66,858
- Assets Under Management: $426.4 million
- Inception Date: April 19, 2011
- Issuer: First Trust
FYC aims to track the Nasdaq AlphaDEX Small Cap Growth Index. The index includes select stocks from the Nasdaq US 700 Small Cap Growth Index ranked according to 3-, 6- and 12- month price appreciation, sales to price, one-year sales growth, and other growth factors. The top 262 of those stocks are selected for inclusion in the index and the fund. FYC is highly diversified, with the top 10 holdings accounting for under 8% of assets invested. The top holdings of FYC include B. Riley Financial Inc. (RILY), a diversified financial services company; At Home Group inc. (HOME), a home decor and furniture retailer; and Calix Inc. (CALX), a provider of software and cloud services.
- Performance over 1-Year: 74.9%
- Expense Ratio: 0.35%
- Annual Dividend Yield: O.31%
- 3-Month Average Daily Volume: 5,135
- Assets Under Management: $135.2 million
- Inception Date: March 1, 2006
- Issuer: Invesco
RZG tracks the S&P SmallCap 600 Pure Growth Index, investing at least 90% of its assets in securities comprising the benchmark. The index consists of equities in the S&P SmallCap 600 Index which display strong growth characteristics as measured by sales growth, earnings change to price, and momentum. More than half of the fund, which has 125 holdings, is represented by the consumer discretionary, healthcare, and information technology sectors. The top holdings of RZG include MarineMax Inc. (HZO), a recreational boat retailer and service provider; Vista Outdoor Inc. (VSTO), a maker of outdoor sports and recreation products; and Mr. Cooper Group Inc. (COOP), a home loan services provider.
- Performance over 1-Year: 71.6%
- Expense Ratio: 0.57%
- Annual Dividend Yield: 0.17%
- 3-Month Average Daily Volume: 78,623
- Assets Under Management: $594.4 million
- Inception Date: June 23, 2005
- Issuer: Invesco
PSI is a multi-cap fund that targets the Dynamic Semiconductor Intellidex Index. The index is comprised companies primarily engaged in manufacturing semiconductors and evaluated according to factors including price momentum, earnings momentum, quality, management action, and value. Of the 31 holdings making up PSI as of May 12, the top 10 account for 46.5% of all invested assets. The top holdings of the fund are Applied Materials Inc. (AMAT), Lam Research Corp. (LRCX), and Texas Instruments Inc. (TXN), all of which are semiconductor manufacturers.
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