The Best ETF for Large-Cap Growth

by Lawrence Meyers | October 21, 2014 8:51 am

There are so many ETFs out there, I thought I’d start a weekly series on finding the right ETF for your portfolio, depending on what kind of portfolio you are keeping. Not all ETFs are created equal, and investors have a broad array of funds to choose from. Heck, if you want an ETF that invests only in clown cars, you could probably find one.

[Ed. note: We have yet to discover a clown car ETF.]

This week, I’m unpacking the best ETFs for large-cap growth stocks.

According to ETFdb.com,[1] there are 23 large-cap growth ETFs, ranging in expense ratio from 0.07% to 1%. They are definitely not created equal, as their YTD returns range from 0.4% to 7.3% as of Oct. 21.

Best ETFs: PowerShares QQQ (QQQ)

For aggressive investors, it isn’t surprising that the best ETF in the large-cap growth category is also the best-performing ETF.  The PowerShares QQQ Trust, Series 1 ETF (QQQ[2]) is up 7.3% YTD, is the most liquid, and has the largest asset base. That’s because this ETF mirrors the Nasdaq 100 index, with a 0.2% expense ratio ($20 per $10,000 invested).

The Nasdaq 100 index is home to all the largest tech firms, and tech traditionally outperforms in a bull market. You’ll find all the top names here: Apple (AAPL[3]), Microsoft (MSFT[4]), Google (GOOG[5]), Intel (INTC[6])and Amazon (AMZN[7]).

The top 10 holdings take up 50% of the ETF, though, and that’s why this is purely for aggressive investors.

Best ETFs: Vanguard Growth Index Fund ETF (VUG)

For the more conservative investor, have a look at the Vanguard Growth Index Fund ETF (VUG[8]). It’s a very large ETF that’s also very liquid, and only carries a 0.09% expense ratio. The VUG is up 3.7% YTD, keeping pace with S&P 500. I like it for its sector diversity, with 24% tech, 20% consumer services, 12% healthcare, 11% industrials, 8% energy, and the rest divided among consumer goods, financials, real estate, communications, and basic materials.

There are many familiar large cap names in here, including Apple, Google, Facebook (FB[9]), Disney (DIS[10]), Coca-Cola (KO[11]), and Oracle (ORCL[12]).

VUG posts an earnings growth rate of 19.1%, easily making it one of the best ETFs for growth investors. Its P/E is high relative to that growth rate, at 25.8, but that’s what you get with growth stocks. This isn’t a value hunt for PEG ratios under 1. You should expect to pay a premium, and you will. This is somewhat balanced by the diversification — 370 stocks are in the ETF.

Best ETFs: Guggenheim S&P 500 Pure Growth ETF (RPG)

The best ETF for all-around large-cap holdings is the Guggenheim S&P 500 Pure Growth ETF (RPG[13]). I like the diversification and the fact that it’s less tech-dependent — both make it an ideal long-term portfolio holding.RPG is up 4.9% YTD.

The breakdown is 26% consumer cyclical, 18% health care, 15% tech, 14% financials, 9% industrial, 7% energy, 7% consumer defensive and a smattering of other sectors. It has a reasonable expense ratio of 0.35%.

It cheats a little because it has 37% mid-cap exposure, but I’ll accept it because I like the diversity. I also like the unusual choice of names instead of going for the obvious. Here we have Southwest Airlinese (LUV[14]), Vertex Pharmaceuticals (VRTX[15]), Keurig Green Mountain (GMCR[16]), Netflix (NFLX[17]) and Chipotle (CMG[18]).

As of this writing, Lawrence Meyers[19] was long AAPL, AMZN and DIS. He is president of PDL Broker, Inc.[20], which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books[21] and blogs about public policy, journalistic integrity, popular culture, and world affairs[22]. Contact him at pdlcapital66@gmail.com[23] and follow his tweets at @ichabodscranium.

Lawrence Meyers owns shares of AAPL, AMZN and DIS.

Source URL: https://investorplace.com/2014/10/best-etf-large-cap-growth/

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