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