As we enter the back half of 2022, among the themes that are abundantly clear is the steep out-performance of growth stocks by value equities, ending a more than decade-long run of dominance by the former.
As such, previously beloved sectors, including communication services, consumer discretionary and technology, are deeply out of favor, ranking among this year’s worst-performing groups. Pinpointing reasons for the growth stock malaise isn’t difficult.
Rising interest rates make the future cash flows of growth companies, and it’s clear more rate hikes are on the way because the Federal Reserve was slow to combat inflation. Speaking of inflation, it’s a predictable drag on consumer spending and signs of that strain are already emerging.
There are, however, some bright spots. Obviously, growth stocks won’t remain moribund permanently and this year’s struggles are creating rare valuation opportunities among growth fare. With those potential positives in mind, here are some growth ETFs for investors to evaluate.
Goldman Sachs Future Tech Leaders Equity ETF (GTEK)
The Goldman Sachs Future Tech Leaders Equity ETF (GTEK) focuses on disruptive, innovative growth stocks – a style of investing that is being savagely repudiated this year. While investors should acknowledge the struggles of disruptive growth this year, they shouldn’t overlook what remains a compelling long-term strategy
GTEK taps into that notion via active management and diversification, which are both traits that could play in favor investors over longer holding periods.
“90% of the world’s data has been produced in the last two years, increasing the need for enterprises to effectively store, manage, and work with large data sets,” according to Goldman Sachs Asset Management (GSAM). “Companies such as UiPath and C3.ai provided innovative software solutions, such as robotic process automation, to organizations seeking to automate their operations at large scale.”
Invesco Nasdaq Next Gen 100 ETF (QQQJ)
The Invesco Nasdaq Next Gen 100 ETF (QQQJ) is taking its lumps this year due in part to the fact that this growth ETF leans into mid-cap and smaller large-cap growth equities. That is to say this could be an ideal growth ETF for risk-tolerant investors seeking mid-cap exposure. QQQJ is also a practical idea for investors seeking thematic exposure without the burden of making bets on a specific theme.
“Thematic investing has become a compelling way for investors to align portfolios with the trends shaping the future,” according to BlackRock research. “A spectrum of long-term and short-term themes are increasingly influencing which companies lead the way as economies grow and markets evolve. The top themes over the last four years capture nearly 25% of US equity market returns on average, a trend that’s accelerated since the emergence of COVID-19 in 2020.”
The $808.6 million QQQJ tracks the Nasdaq Next Generation 100 Index, which is the training ground for stocks angling for promotion to the famed Nasdaq-100 Index (NDX).
Goldman Sachs Innovate Equity ETF (GINN)
The Goldman Sachs Innovate Equity ETF (GINN) isn’t a carbon company of the aforementioned GTEK. Rather, GINN is a passively managed growth ETF that leans into large- and mega-cap growth stocks.
Opportunity is abound with GINN because this growth ETF is littered with venerable communication services, consumer cyclical and tech stocks that are now trading at unusually low multiples, indicating there’s value to be had here.
“The style score is based on metrics such as growth rates for earnings, sales, book value, and cash flow. It also factors in dividend yields and relative valuations such as the price/projected earnings ratio, price/book, price/sales, and price/cash flow,” wrote Morningstar analyst Lauren Solberg. “Central to growth’s stocks performance in 2022 has been their valuations, which are largely based on expectations for earnings in the future. And those criteria are affected by the level of interest rates.”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
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