Typically, growth exchange-traded funds (ETFs) offer investors diverse portfolios of public firms with above-average growth rates. In addition to high valuations, growth companies are characterized by fast-growing profits, sales, and cash flow. Before the recent past, growth investment techniques had outpaced value investing for over a decade. However, increasing interest rates and accelerating inflation have weakened growth stocks. As with any investment, the future is unknown. However, a reversal in our inflation-plagued forecast might signal a return to outperformance for growth investing. Significantly, on this list, there will be a significant growth stock ETF for every kind of investor.
List of Contents
- What Is ETF?
- 7 Growth ETFs You Should Buy in 2023
- 1. Vanguard U.S. Momentum Factor ETF (VFMO)
- 2. Direxion NASDAQ-100 Equal Weight ETF (QQQE)
- 3. iShares Morningstar Mid-Cap Growth ETF (IMCG)
- 4. Vanguard Growth ETF (VUG)
- 5. Nuveen ESG Large-Cap Growth ETF (NULG)
- 6. Vanguard S&P Small-Cap 600 Growth ETF (VIOG)
- 7. Vanguard International Dividend Appreciation ETF (VIGI)
- Conclusion
What Is ETF?
ETF stands for exchange-traded fund. It is a kind of pooled investment product that functions similarly to a mutual fund. It often follows a specific index, sector, commodity, or other assets. However, unlike mutual funds, ETFs may be bought and sold on a stock market in the same way that normal stocks can. Moreover, it can be designed to track anything from a single commodity’s price to a huge and diversified group of commodities. Additionally, it can even be designed to follow certain investing strategies. Importantly, the SPDR S&P 500 ETF (SPY) was the first ETF and is still actively traded today.
Besides, an ETF is exchanged on a stock exchange, much like stocks. Thus, the value of its shares fluctuates during the trading day as they are purchased and sold on the market. In contrast, mutual funds are not traded on an exchange and trade just once each day after the markets shut. Furthermore, compared to mutual funds, ETFs are less expensive and more liquid.
7 Growth ETFs You Should Buy in 2023
1. Vanguard U.S. Momentum Factor ETF (VFMO)
Expense Ratio: 0.13%
1-Year Avg. Annualized Return: -6.17%
3-Year Avg. Annualized Return: 14.4%
Why We Selected It
We chose this more recent growth ETF because of its actively managed factor approach, minimal management costs, and outstanding results. Unlike many large-cap growth rivals, the Vanguard U.S. Momentum Factor ETF has not lost 20% or more in this year’s volatile market. Moreover, the rules-based algorithm of VFMO finds equities with increasing price trends and above-average dividend yields. Additionally, while being classified as a large-cap growth fund, its portfolio has a median market value of $13.6 billion, reflecting the participation of a few small- and mid-cap enterprises.
In addition, VFMO has a reasonably high average profits growth rate of 18% and a relatively low P/E ratio of 11. Dividends provide a buffer against further falls in the stock market, while the momentum approach of the fund produces outstanding performance. Conservative investors in growth should value this combo.
2. Direxion NASDAQ-100 Equal Weight ETF (QQQE)
Expense Ratio: 0.35%
5-Year Avg. Annualized Return: 11.5%
10-Year Avg. Annualized Return: 15.0%
Why We Selected It
The Direxion NASDAQ-100 Equal Weight ETF allocates 1% to each of the stocks comprising the Nasdaq 100 Index. The index measures the performance of the major nonfinancial equities listed on the Nasdaq stock market.
Quarterly, QQQE rebalances its portfolio to maintain equal weighting. Technology, consumer discretionary, and healthcare equities account for around 70% of the fund’s holdings. Consider QQQE if you want to capture the performance of every firm on the Nasdaq 100, not just the most recognizable ones.
3. iShares Morningstar Mid-Cap Growth ETF (IMCG)
Expense Ratio: 0.06%
5-Year Avg. Annualized Return: 12.0%
10-Year Avg. Annualized Return: 13.2%
Why We Selected It
Mid-cap stocks include less price volatility than small-cap stocks and greater growth potential than large-cap companies. The iShares Morningstar Mid-Cap Growth ETF portfolio consists of over 330 U.S. firms with above-average earnings growth. This mid-cap growth sundae has an AA MSCI ESG rating and an ultra-low expenditure ratio.
IMCG has an abundance of high-quality firms in the markets of technology, industrials, health care, consumer discretionary goods, and finance. The passively managed fund seeks to replicate the performance of the Morningstar US Mid-Cap Broad Growth Index, and its five- and ten-year annualized returns are difficult to surpass. This might be the optimal alternative for delivering returns in a diverse investment portfolio for growth investors.
4. Vanguard Growth ETF (VUG)
Expense Ratio: 0.04%
5-Year Avg. Annualized Return: 11.8%
10-Year Avg. Annualized Return: 13.2%
Why We Selected It
If you just want one large-cap fund in your portfolio, you might choose the colossal Vanguard Growth ETF, which presently manages more than $130 billion in assets (AUM). This passively managed index fund holds 250 firms with a median market capitalization of $275 billion and carries a nominal yearly fee. Vanguard is well-known for its low expense ratios and superior management.
VUG’s component firms’ average annual profit growth rate is close to 28%. The fund is heavily invested in the technology and consumer discretionary sectors, which account for roughly 47% and 25% of the portfolio, respectively. Like large market-cap funds, returns are driven by the performance of the largest component firms, with about 50% of the fund’s assets concentrated in its top 10 holdings.
5. Nuveen ESG Large-Cap Growth ETF (NULG)
Expense Ratio: 0.25%
3-Year Avg. Annualized Return: 12.7%
5-Year Avg. Annualized Return: 14.1%
Why We Selected It
Investors who expect U.S. stock growth to resume and want the investments to reflect their values can consider the Nuveen ESG Large-Cap Growth ETF. NULG passive management lowers theme strategy fund fees.
Managers screen large-cap firms for low carbon emissions and other environmental, social, and governance (ESG) criteria. In its portfolio, NULG has over 75 firms, of which more than 40% are from the technology sector, 17% are consumer discretionary stocks, and 13% are healthcare stocks.
6. Vanguard S&P Small-Cap 600 Growth ETF (VIOG)
Expense Ratio: 0.15%
5-Year Avg. Annualized Return: 7.59%
10-Year Avg. Annualized Return: 12.2%
Why We Selected It
Small-cap stocks are often more agile than their large-cap counterparts, giving the potential for quicker growth and significantly more volatility. The Vanguard S&P Small-Cap 600 Growth ETF invests in the S&P 600 small-cap component stocks with the highest growth rates.
The cost ratio of 0.15% for VIOG is 100 basis points less than the average expense ratio of 1.19% for comparable small-cap value funds. The fund’s 350 holdings have an average yearly profit growth rate of 19% and a P/E of 11.
7. Vanguard International Dividend Appreciation ETF (VIGI)
Expense Ratio: 0.15%
3-Year Avg. Annualized Return: 4.94%
5-Year Avg. Annualized Return: 4.89%
Why We Selected It
This dividend-growth foreign equities fund is more attractive because Vanguard International Dividend Appreciation ETF has among the lowest cost ratios in its peer group. More than 300 firms in VIGI’s portfolio have increased dividends for at least seven years and have an average market capitalization of $64.2 billion.
In addition, the VIGI index includes 44% European, 25% Asian, 17% North American, and 14% global firms. This large-cap growth fund might appeal to investors who believe in the diversification of global equities and continuous cash flow.
Conclusion
ETFs are an excellent option for novice investors who lack significant market knowledge. However, the ETF can incur losses if it invests in market-based assets such as equities and bonds. The government does not protect these assets against loss. Nevertheless, ETFs have plenty to offer novice and even seasoned investors who do not wish to examine investments or invest in specific equities. Rather than trying to identify winning stocks, for instance, you might purchase an index fund and own a portion of numerous great firms.
By investing in dozens or even hundreds of assets, ETFs provide diversification benefits, decreasing the risk for investors relative to holding a small number of assets. Therefore, depending on their holdings, ETFs might be a secure option for beginners.
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Source: Forbes