The Rydex S&P 500 Pure Growth ETF (NYSEArca:RPG) aims to
deliver a purer version of the garden-variety growth fund. With
over $313 million in assets and five years of return history, RPG
has established itself as a viable choice for those wanting
âgrowthierâ growth, as Carolyn Hill touched on in her recent
Over the past five years, RPG returned 34.3 percent, or almost
twice that of another popular growth fund, the iShares S&P 500
Growth Index Fund (NYSEArca:IVW), which rose 16.2 percent.
The idea behind RPG is simple. Most style funds split their pool
of stocks into growth or value, meaning every stock gets assigned
to one or the other.
The stocks that live in the middle of the style continuum have
their weight split between the two style buckets. Effectively these
fence-sitting stocks are both growth
value. An individual stock might be assigned to 60 percent in
growth and 40 percent in value, for example.
RPG dispenses with middle-of-the-road stocks altogether. Instead
it holds only those companies
that exhibit the âtrueâ growth characteristics, as defined by
In some ways, RPGâs approach seems intuitive and unremarkable.
After all, the ubiquitous style box visually suggests this type of
arrangement, even though itâs not the norm for popular growth
funds like IVW.
The Usual Suspects
Funds that stray off the beaten path to deliver high returns
often use higher-beta and smaller-cap stocks to get there. Letâs
look at RPG along these lines, again using IVW as a reference.
First, does pure growth mean higher beta?
In this case, the answer may be yes. I looked at five years of
returns (NAV total return), comparing RPG and IVW, respectively, to
the S&P 500. I used the broad-based iShares S&P 500 Index
Fund (NYSEArca:IVV) as an investable proxy for the S&P.
For the five-year period, RPGâs beta was 1.05 compared with
This means RPG lives a bit further out on the risk/return
continuum, at least according to this set of data points. In other
words, youâll take more risk for the extra growth, which is just
fine as long as you realize what youâre getting into. A graph of
year-to-date returnsâwith higher highs and lower lowsâmakes
RPGâs higher beta easier to see.
I spoke about the stock-selection process above, but the
difference in stock weighting is more striking, in my view. Letâs
check out the top holdings in RPG and IVW.
The differences in top holdings underscore the small-cap tilt
thatâs built into RPG. Most telling is how RPGâs top holdings
map over to IVW. Priceline, RPGâs top holding, is 65
in IVWâs holdings. And Chipotle is 155
The weighted average of the market cap of stocks in the fund
measures this small-cap tilt directly. RPGâs weighted average
market cap is $27.4 billion to IVWâs $86.6 billion, according to
Bloomberg. Thatâs a huge difference. It means the average firm in
RPG is about a third the size of those in IVW.
In sum, while both funds pull from the S&P 500, RPG gives
the smaller-cap stocks it choosesâlike Chipotleâa much higher
weighting than IVW. Smaller-cap stocks are generally riskier, hence
the higher beta.
RPG certainly looks âgrowthier,â using the price-to-earnings
ratio. RPGâs P/E is 16.8 compared with 14.8 for IVW.
Also, RPGâs 27 percent turnoverâa measure of how long the
stocks stay in the portfolioâis only moderately higher than
IVWâs 22 percent. Sometimes funds using alternative methods show
high turnover, but not here.
Lastly, RPGâs annual expense ratio is almost twice as much as
IVWâs, at 0.35 percent vs. 0.18 percent, respectively. The
difference may reflect RPGâs higher costs for buying and selling
its smaller-cap underlying stocks.
I happen to like the pure-growth story. That RPG keeps a mature
firm such as Microsoft out of the limelight makes sense to me. But
investors may need a bit of extra fortitude to reach for a
higher-beta fund like RPG when triple-digit dips in the Dow are all
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