After a lackluster July, growth stocks seem to have regained their appeal this month. This is especially true given that the S&P 500 Growth Index is up 3.9% so far this month, outpacing the gain of 1.6% for the S&P 500 Value Index.
Strong rebound in large-capitalization technology and Internet stocks as well as surging earnings led to investors’ appetite for more risk. Double-digit earnings growth in the second quarter is expected to be the highest quarterly growth pace in almost eight years. For full-year 2018, total earnings for the S&P 500 Index are expected to be up 20.6% on 6.3% higher revenues.
The combination of both factors lifted the S&P 500 and Nasdaq Composite Index to record highs with the latter crossing the 8,000 mark for the first time. Additionally, the trade agreement reached between the United States and Mexico boosted investor sentiment though trade tensions with China continue to remain an overhang.
Further, the U.S. economy is witnessing the fastest pace of growth in nearly four years with a nearly two-decade low unemployment rate of 3.9%, thanks to historic tax cuts, higher government spending, deregulation, rising consumer confidence and higher spending. Per Trump, “the United States is on track to hit the highest annual growth rate in over 13 years.”
While value investing has garnered immense attention in the volatile markets, growth stocks have more upside potential in the coming months, given the surging stock market and booming economic growth. This is especially true, as growth stocks refer to high-quality stocks that are likely to witness revenues and earnings increase at a faster rate than the industry average.
These stocks harness their momentum in earnings to create a positive bias in the market, resulting in higher share prices. As such, growth funds tend to outperform during an uptrend.
However, it is worth noting that these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility especially compared to value stocks.
Given this, we have highlighted a number of growth ETFs that hit all-time highs in the last trading session and have AUM of $1 billion or more. Any of these could be excellent plays for investors seeking to ride out the bullish trend in the coming months as well given that these have a Zacks ETF Rank #1 (Strong Buy).
iShares Russell 1000 Growth Index (NYSEARCA:IWF)
This ETF follows the Russell 1000 Growth Index and holds 542 stocks in its basket. It has AUM of $44.4 billion and charges 20 bps in annual fees.
iShares S&P 500 Growth Index (NYSEARCA:IVW)
This fund tracks the S&P 500 Growth Index and holds 296 stocks in its basket. It charges 18 bps in annual fees and has amassed $22.5 billion in its asset base.
iShares Russell 2000 Growth Index (NYSEARCA:IWO)
This fund tracks the Russell 2000 Growth Index, holding 1213 stocks with AUM of $11.3 billion. It charges 24 bps in annual fees from investors.
Vanguard Small-Cap Growth ETF (NYSEARCA:VBK)
This ETF follows the CRSP US Small Cap Growth Index, holding 650 securities in its basket. It has amassed $8.9 billion in its asset base while charging 7 bps in fees per year.
iShares S&P Small-Cap 600 Growth ETF (NASDAQ:IJT)
This fund follows the S&P SmallCap 600 Growth Index and holds a portfolio of 334 stocks. It has AUM of $7.1 billion and expense ratio of 0.25%.
Schwab U.S. Large-Cap Growth ETF (NYSEARCA:SCHG)
With AUM of $6.8 billion, SCHG follows the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. It holds 426 stocks in its basket and charges 4 bps in annual fees.
iShares Core S&P U.S. Growth ETF (NASDAQ:IUSG)
This product tracks the S&P 900 Growth Index and is home to 543 stocks. It has accumulated $5.1 billion in its asset base and charges 4 bps in fees per year.
SPDR Portfolio S&P 500 Growth ETF (NYSEARCA:SPYG)
This product follows the S&P 500 Growth Index, holding 296 stocks in its basket. It has amassed $3.4 billion in its asset base and charges investors 4 bps in annual fees.
SPDR S&P 600 Small Cap Growth ETF (NYSEARCA:SLYG)
This ETF follows the S&P Small-Cap 600 Growth Index and holds 334 stocks in its portfolio. It has been able to manage $2.4 billion in its asset base while charging 15 bps in annual fees.
Vanguard Russell 1000 Growth ETF (NASDAQ:VONG)
This ETF tracks the Russell 1000 Growth Index, charging investors 12 bps in annual fees. It holds a basket of 545 stocks with AUM of $2 billion.
iShares Morningstar Large-Cap Growth ETF (NYSEARCA:JKE)
With AUM of $1 billion, this product tracks the Morningstar Large Growth Index. It holds 82 securities in its basket and charges 25 bps in fees.
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