Best Growth ETFs for Q4 2022

FV, DALI, and FDLO are the best growth ETFs for Q4 2022

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.

Key Takeaways

  • Growth stocks underperformed the broader market over the past year.
  • The exchange-traded funds (ETFs) with the best one-year trailing total returns are FV, DALI, and FDLO.
  • The top holdings of these funds are shares of the First Trust Energy AlphaDEX Fund, the First Trust Global Tactical Commodity Strategy Fund, and Apple Inc., respectively.

There are 71 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. Our search is limited to smart beta funds, as opposed to funds that happen to contain growth stocks, to reflect those ETFs that have a specific growth focus.

Growth stocks, as measured by the S&P 500 Growth Index, underperformed the broader market over the past year. The index provided a one-year trailing total return of -14.7% compared to the S&P 500’s one-year trailing total return of -8.1%, as of Sept. 9, 2022. The best-performing growth ETF, based on performance over the past year, is the First Trust Dorsey Wright Focus 5 ETF (FV).

We examine the three best growth ETFs below. All numbers and data below are as of Sept. 8. In order to focus on the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.

First Trust Dorsey Wright Focus 5 ETF (FV)

  • Performance Over One-Year: -3.8%
  • Expense Ratio: 0.89%
  • Annual Dividend Yield: 0.04%
  • Three-Month Average Daily Volume: 201,750
  • Assets Under Management: $2.9 billion
  • Inception Date: March 5, 2014
  • Issuer: First Trust

FV tracks the Dorsey Wright Focus Five Index, providing exposure to five sector and industry ETFs with the greatest potential to outperform other ETFs in the selection universe. The index utilizes a price momentum comparison across eligible ETFs to select the top five based on relative strength.

The top holdings of FV include shares of the First Trust Energy AlphaDEX Fund (FXN), an ETF focused on energy companies; the First Trust Nasdaq Oil & Gas ETF (FTXN), an ETF providing exposure to U.S. oil and gas companies; and the First Trust Nasdaq Food & Beverage ETF (FTXG), an ETF targeting U.S. food and beverage companies. The three ETFs comprise nearly 63% of FV's holdings.

First Trust Dorsey Wright DALI 1 ETF (DALI)

  • Performance Over One-Year: -4.0%
  • Expense Ratio: 0.92%
  • Annual Dividend Yield: 0.03%
  • Three-Month Average Daily Volume: 26,303
  • Assets Under Management: $147.9 million
  • Inception Date: May 14, 2018
  • Issuer: First Trust

DALI aims to track the Nasdaq Dorsey Wright DALI 1 Index, an index targeting the asset class that advisory firm Dorsey, Wright & Associates believes is likely to outperform based on the Dynamic Asset Level Investing process. DALI evaluates domestic equities, international equities, and commodities by comparing components of each asset class for relative strength. The asset class with the highest overall relative strength score is included in the index via investments in other ETFs. The ETF invests in only one asset class at a time.

The first and only holding of DALI is shares of the First Trust Global Tactical Commodity Strategy Fund (FTGC), indicating that the commodities asset class was determined to be the strongest of the three. The top holdings of FTCG as of Sept. 9 include corn, soybean, and gold futures.

Fidelity Low Volatility Factor ETF (FDLO)

  • Performance Over One-Year: -6.5%
  • Expense Ratio: 0.29%
  • Annual Dividend Yield: 1.15%
  • Three-Month Average Daily Volume: 79,552
  • Assets Under Management: $441.8 million
  • Inception Date: Sept. 12, 2016
  • Issuer: Fidelity

FDLO targets the Fidelity U.S. Low Volatility Factor Index, comprised of large and mid-capitalization U.S. companies experiencing lower volatility than the broader market. Nearly three quarters of the portfolio is made up of large-cap stocks, with mid-cap companies comprising the bulk of the remainder. Information technology companies account for more than 26% of invested assets, followed by healthcare and real estate stocks.

The top holdings of FDLO include Apple Inc. (AAPL), Microsoft Corp. (MSFT), and Class A shares of Alphabet Inc. (GOOGL). All three are major multinational technology companies.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

Article Sources
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