Growth ETFs: Performing Well

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Growth ETFs attempt to provide exposure to the most dynamic and successful companies in the marketplace. This can be expensive. Growth ETFs typically have high P/E ratios. Growth ETFs tend to hold the more volatile high-beta securities that move up or down more than the market benchmarks. Owning growth stocks is thought to be dangerous when markets fall. But the recent bear market, growth ETFs have kept pace. In some cases they have outperformed.

The chart below shows how a well-established large-cap growth ETF, the iShares S&P 500 Growth Index (NYSEArca: IVW), performed compared with the large cap benchmark Standard and Poor Depositary receipts (NYSEArca:SPY):


The chart shows growth ETF IVW outperforming during this period. This performance is notable because it did not decline more than the benchmark SPY during the sell-off in late 2008 and early 2009. In fact, as the chart shows, IVW made important gains compared to the SPY near the bottom of the market in March of 2009.

Unfortunately for the growth story, this was less true for smaller cap companies. The chart below compares the small-cap benchmark iShares Russell 2000 ETF (NYSEArca:IWM) with the iShares Russell 2000 Growth ETF (NYSEArca:IWO) during the same period:

The underperformance of IWO compared to larger cap IVW partly recalls research by Fama and French over a decade ago. In their study Fama and French panned growth stocks. They suggested that growth over the longer term delivers lower returns at higher risk than value funds. They also singled out small cap growth as an especially unwelcome asset class, both volatile and low performing. This was clearly untrue in the bull market of the 1990s when growth far outperformed value. Though less clearly, it also seems untrue today.

Growth ETFs tend to be differentiated primarily in terms of the market cap size of their holdings and their exposure to small companies. Growth investors who wish to overweight a range of certain sized growth companies should find an ETF that matches that range. The list below presents traditional growth ETFs, the company size targeted in their holdings, as well as their fees:

Traditional "Plain Vanilla" Growth ETFs

Traditional "Plain Vanilla" Growth ETFs

iShares Russell 1000 Growth ETF (NYSEArca:IWF): 1000 largest firms, .20%/ year fees

iShares Russell 2000 Growth ETF (NYSEArca:IWO): 1001-2000 largest firms, .25%

iShares Russell 3000 Growth ETF (NYSEArca:IWZ): 3000 largest firms, .25%

iShares Russell Midcap Growth ETF (NYSEArca:IWP): 201-1000 largest firms., .25%

iShares S&P 500 Growth ETF (NYSEArca:IVW): 500 largest firms, .18%

iShares S&P MidCap 400 Growth ETF (NYSEArca:IJK): 501 to 900 largest, .25%

iShares S&P SmallCap 600 Growth Index Fund ( IJT ): 901 to 1500 largest, .25%

SPDR Dow Jones Wilshire Large Cap Growth ETF (NYSEArca:ELG): largest 750, .20%

SPDR Dow Jones Wilshire Mid Cap Growth ETF (NYSEArca:EMG): 501-1000 largest, .25%

SPDR Dow Jones Wilshire Small Cap Growth ETF (NYSEArac:DSG): 751-2500 largest, .25%

Vanguard Growth ETF (NYSEArca:VUG): 750 largest firms, .11%

Vanguard Mega Cap 300 Growth ETF (NYSEArca:MGK): 300 largest firms, .13%

Vanguard Mid-Cap Growth ETF (NYSEArca:VOT): 301-750 largest firms, .13%

Vanguard Small-Cap Growth ETF ( VBK ): 751-1750 largest, .12%

International Growth

International Growth

iShares MSCI EAFE Growth Index Fund (NYSEArca:EFG), .4%

We think that these are the best growth ETFs. All the products have reasonable fees and thoughtful indexes. These ETFs are based on well-regarded, modern, capitalization-weighted indexes. Vanguard depends on MSCI, SPDR uses Dow Jones Wilshire indexes, while iShares deploys both Russell and S&P indexes. It is useful that most ETFs in each line are complementary and have no overlap. By sticking to one product line, an investor can overweight one asset class with clarity and precision. Among the exceptions is iShares' IWZ which is a nearly total market product, Vanguard's VUG which is the sum of MGK and VOT (and therefore complementary to remaining VBK), SPDR's EMG which overlaps other Wilshire ETFs in the middle and likewise iShares' IWP.

There are also some fairly equivalent funds available through Rydex and Morningstar. And fund-of-funds ETFs from Autonomic. They tend to be a little more expensive:

Rydex S&P 500 Pure Growth ETF (NYSEArca:RPG), 500 largest firms, .35%

Rydex S&P MidCap 400 Pure Growth ETF (NYSEArca:RFG), 501-900 largest, .35%

Rydex S&P SmallCap 600 Pure Growth ETF (NYSEArca:RZG), 901-1500 largest, .35%

iShares Morningstar Large Growth Index Fund (NYSEArca:JKE), .3%

iShares Morningstar Mid Growth Index Fund (NYSEArca:JKH), .3%

iShares Morningstar Small Growth Index Fund (NYSEArca:JKK), .3%

Autonomic Balanced Growth NFA Global Asset Portfolio ETF (NYSEArca:PAO), .25%

Autonomic Growth NFA Global Asset Portfolio ETF (NYSEArca:PTO), .25%

There are also several ETFs based on proprietary enhanced or fundamental indexes. These funds sometimes deliver higher returns, sometimes lower. They always charge higher fees.

Fundamental Growth ETFs

Fundamental Growth ETFs

First Trust Large Cap Growth Opportunities AlphaDEX Fund (NYSEArca:FTC), .7%

Powershares Dynamic Large Cap Growth Portfolio ETF (NYSEArca:PWB), .63%

Powershares Dynamic Mid Cap Growth Portfolio ETF (NYSEArca:PWJ), .63%

Powershares Dynamic Small Cap Growth Portfolio ETF (NYSEArca:PWT), .63%

And finally there are short and leverage growth ETFs that despite their high fees and sometimes uneven returns may be attractive to traders looking for a short-term play:

Short/Leverage Growth ETFs

Short/Leverage Growth ETFs

ProShares Ultra Russell 1000 Growth ETF (NYSEArca:UKF), .95%

ProShares Ultra Russell 2000 Growth ETF (NYSEArca:UKK), .95%

ProShares Ultra Russell MidCap Growth ETF (NYSEArca:UKW), .95%

ProShares UltraShort Russell 1000 Growth ETF (NYSEArca:SFK), .95%

ProShares UltraShort Russell 2000 Growth ETF (NYSEArca:SKK), .95%

ProShares UltraShort Russell MidCap Growth ETF (NYSEArca:SDK), .95%

Jonathan Bernstein has been writing about ETFs since 2003 and is the author of Sector Trading: A Year in Exchange Traded Funds .

Jonathan Bernstein has been writing about ETFs since 2003 and is the author of Sector Trading: A Year in Exchange Traded Funds . Jonathan Bernstein Sector Trading: A Year in Exchange Traded Funds



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs


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