If you’re an aggressive investor, now is the time to consider the best growth exchange-traded funds (ETFs) to buy for their impending turnaround.
Growth stocks have done much worse than value stocks eight months into 2022. The iShares S&P 500 Growth ETF (NYSEARCA:IVW) is down 18.2% year-to-date, while the iShares S&P 500 Value ETF (NYSEARCA:IVE) is down just 5.2%.
Stifel Chief Strategist Barry Bannister recently upped his second-half target for the S&P 500 to 4,400, 200 points higher than his previous prediction. The analyst believes that “cyclical growth” stocks will lead the way in the fall.
“‘We continue to prefer cyclical growth,’ Bannister said in a note dated Aug. 4, pointing to the software, media, tech hardware, retail and semiconductor industries. ‘The five cyclical growth industry groups we see rallying are dominated by large technology-related stocks,'” MarketWatch reported on Aug. 4.
Bannister is especially keen on large-cap tech stocks. So, that’s where I’ll take my search for the three best growth ETFs to buy now.
To make the cut, the ETF must have a market capitalization of $1 billion or more, a tech weighting of at least 15%, and an expense ratio of less than 0.25%.
Best Growth ETFs: Vanguard Growth ETF (VUG)
The Vanguard Growth ETF (NYSEARCA:VUG) is the largest of my three best growth ETF selections, with a market capitalization of $77.2 billion, a very-low management expense ratio of 0.04% ($4 per $10,000 invested), and a 48.3% tech weighting.
The ETF tracks the CRSP US Large Cap Growth Index, a collection of large-cap U.S. growth companies. The Vanguard Growth ETF currently invests in 260 stocks with a median market cap of $309.7 billion and a sizzling 30.2% return on equity.
The ETF has a low turnover rate of 7.6%, which means it turns the entire portfolio approximately every 13 years.
The three largest sector weightings after technology are consumer discretionary (23.5%), industrials (10.7%), and healthcare (7.5%). The top 10 holdings account for 50% of its total net assets. Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) account for 24.5% of the portfolio.
Since its inception in January 2004, VUG has had a cumulative return of 513.92% through July 31, 10.3% on an annualized basis.
As Apple and Microsoft go, so goes VUG. I like its chances over the long haul.
SPDR Portfolio S&P 500 Growth ETF (SPYG)
As the name suggests, the SPDR Portfolio S&P 500 Growth ETF (NYSEARCA:SPYG) invests in S&P 500 companies that exhibit the strongest growth characteristics.
It tracks the S&P 500 Growth Index, a collection of large-cap U.S. growth companies. The index uses three growth characteristics to select the constituents: sales growth, changes in earnings over price, and momentum.
SPYG has $16.4 billion in total net assets invested in 240 growth stocks. The typical company held by SPYG has three- to five-year earnings per share (or EPS) growth of 15.10%, a 23.94 price-to-earnings ratio, and a weighted average market cap of $1.02 trillion.
The ETF’s three most significant sectors by weighting are technology (44.9%), consumer discretionary (16.6%), and healthcare (11.3%).
The ETF has a low turnover rate of 11.0%. The top 10 holdings account for 53% of its total net assets. Apple and Microsoft are the top two holdings accounting for 27.1% of the portfolio.
SPYG charges 0.04%. Since its inception in September 2000, SPYG’s annualized total return has been 5.29% through July 31. It’s considerably less than VUG because it was started during the dot.com correction between March 2000 and October 2002.
Best Growth ETFs: iShares S&P Mid-Cap 400 Growth ETF (IJK)
When it comes to investing in growth stocks, it doesn’t hurt to invest in smaller mid-cap stocks.
Rounding out this list of best growth ETFs is the iShares S&P Mid-Cap 400 Growth ETF (NYSEARCA:IJK). It tracks the performance of the S&P MidCap 400 Growth Index, a collection of mid-cap stocks exhibiting growth characteristics. The growth characteristics include the three-year change in EPS over the price per share, the three-year sales-per-share growth rate, and momentum.
The growth index accounts for approximately 48.6% of the S&P MidCap 400.
IJK currently has total net assets of $7.3 billion in total net assets invested in 234 mid-cap stocks. The average holding has a $7.0 billion market cap with 12.76% sales growth and 14.55% earnings growth. The ETF’s average holding trades at 14.35x earnings and 1.65x sales.
The top 10 holdings account for 12.0% of the total net assets. It turns the portfolio once every 2.2 years. Familiar names in the top 10 include Williams-Sonoma (NYSE:WSM) and Builders FirstSource (NYSE:BLDR).
The ETF’s top three sectors by weighting are industrials (18.6%), consumer discretionary (15.5%), and technology (15.3%).
IJK charges 0.17%, which is very reasonable for a mid-cap index ETF. Since its inception in July 2000, its annualized total return has been 7.56% through July 31.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
