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.

Key Takeaways

  • Growth stocks outperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are OGIG, PTF, and PTH.
  • The top holdings of these ETFs are Amazon.com Inc., Apple Inc., and Pacific Biosciences of California Inc., respectively.

There are 79 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, have outperformed the broader market with a total return of 31.6% over the past 12 months compared to the S&P 500's total return of 18.7%, as of February 5, 2021. The best-performing growth ETF, based on performance over the past year, is the O'Shares Global Internet Giants ETF (OGIG). We examine the 3 best growth ETFs below. All numbers below are as of February 8, 2021.

O'Shares Global Internet Giants ETF (OGIG)

  • Performance over 1-Year: 110.7%
  • Expense Ratio: 0.48%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 230,278
  • Assets Under Management: $825.1 million
  • Inception Date: June 5, 2018
  • Issuer: O'Shares

OGIG tracks the O'Shares Global Internet Giants Index, which is comprised of global Internet technology and e-commerce equities that exhibit the potential for quality and growth. The ETF is focused on large-cap growth stocks in the tech sector across developed markets, but is heavily weighted to U.S. equities, which receive a 60% allocation within the portfolio. The next biggest country weighting is China, with a 23% allocation. The fund's top three holdings include Amazon.com Inc. (AMZN), a provider of e-commerce, cloud computing, digital streaming, and other Internet services; Tencent Holdings Ltd. (700:HKG), a China-based provider of e-commerce, payment systems, social networking, and other Internet services; and sponsored ADRs of Alibaba Group Holding Ltd. (BABA), a provider of e-commerce, online financial, Internet infrastructure, and other services.

Invesco DWA Technology Momentum ETF (PTF)

  • Performance over 1-Year: 94.1%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 30,465
  • Assets Under Management: $397.0 million
  • Inception Date: October 12, 2006
  • Issuer: Invesco

PTF tracks the Dynamic Technology Sector Intellidex Index, which is comprised of technology stocks that meet a set of investment merit criteria, including fundamental growth, stock valuation, investment timeliness, and risk factors. The ETF invests in U.S. growth tech stocks of various market capitalizations. As much as 43% of the fund is allocated to software. The next biggest allocation, 20%, is to semiconductors and semiconductor equipment. Its top three holdings include Apple Inc. (AAPL), a multinational technology company that manufactures smartphones, tablets, computers, and offers related software and services; Five9 Inc. (FIVN), a provider of cloud software for contact centers; and Digital Turbine Inc. (APPS), a mobile services platform provider.

Invesco DWA Healthcare Momentum ETF (PTH)

  • Performance over 1-Year: 87.7%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 47,321
  • Assets Under Management: $824.1 million
  • Inception Date: October 12, 2006
  • Issuer: Invesco

PTH tracks the Dynamic Healthcare Sector Intellidex Index, which is comprised of U.S. healthcare stocks that meet a set of investment merit criteria, including fundamental growth, stock valuation, investment timeliness, and risk factors. The ETF focuses on U.S. healthcare growth stocks across the market-cap spectrum. More than 45% of the fund is allocated to biotechnology companies, followed by 16.9% for healthcare providers and services, and 16.8% for life sciences tools and services. The fund is probably best utilized as part of a short-term or sector-rotation strategy, and may be too targeted as part of a long-term portfolio. The fund's top three holdings include Pacific Biosciences of California Inc. (PACB), a biotechnology company focused on genetic sequencing systems; Fulgent Genetics Inc. (FLGT), a biotech company focused on genetic testing and next generation sequencing solutions; and TG Therapeutics Inc. (TGTX), a clinical-stage biopharmaceutical company that develops innovative products for the treatment of cancer and other underserved therapeutic needs.

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