Best Growth ETFs for Your Investment Portfolio

Apr 4, 2022 03:43 PM ET
Best Growth ETFs for Your Investment Portfolio

Growth ETFs are one of two types of ETFs, the other being value ETFs. The former is designed to invest in a basket of stocks whose underlying firms have the potential for rapid growth rather than undervalued stocks. These ETFs can deliver above-average returns, but they also come with a larger risk of losing money because rapid growth is often accompanied by higher volatility, particularly during periods of economic instability. These ETFs might not be the ideal option for investors hoping for a continuous income stream. This is because many growing companies reinvest their revenues in future expansion rather than providing dividends to shareholders. 

We look at the best 6 growth ETFs in this article, and while we think they’re solid investments, we are not offering any professional investing advice. You are solely responsible for your finances if you invest in them.

Vanguard Growth Index Fund ETF Shares (VUG)

VUG 1-year performance chart

VUG is an ETF that invests in large-cap growth stocks. It includes firms with market capitalizations as low as $535 million and the top 85% of US equities weighted by market capitalization. While the index is mostly made up of large-cap stocks, it also includes some mid-cap stocks. Certain parameters, such as earnings-per-share growth and return on assets, are used to divide the index in half, with one half representing growth stocks and the other representing value stocks.

Over half of the portfolio is made up of the top ten holdings. Similarly, technology businesses account for more than half of the portfolio. With an expense ratio of just 0.04%, the VUG ETF is one of the most cost-effective methods to add growth equities to your portfolio.

Vanguard Mega Cap Growth Index Fund ETF Shares (MGK)MGK 1 year performance chart

MGK invests in the top 70% of market capitalization, which includes stocks worth as little as $1.9 billion. The goal of the investment is to track the CRSP US Mega Cap Growth Index's performance. The fund uses an indexing investment strategy to track the performance of a benchmark index. The index is a market-capitalization-weighted, float-adjusted index designed to track the performance of mega-capitalization growing stocks. 

The instrument tries to replicate the target index by investing all (or nearly all) of its assets in the index's constituent stocks, holding each stock in roughly the same proportion as its index weighting. The fund has no diversification.

iShares Russell Mid-Cap Growth ETF (IWP)

IWP 1 year performance chart

Mid-cap stocks may provide additional potential for capital growth without the risk of small-cap stocks. The iShares Russell Mid-Cap Growth ETF is a fantastic alternative to diversify away from the large tech companies that dominate growth equities. The iShares Russell Mid-Cap Growth ETF aims to replicate the performance of an index made up of mid-capitalization US stocks with growth characteristics.

It comprises the Russell 1000 Index's lowest 800 stocks, with market capitalizations ranging from $300 million to $52 billion dollars. Over the last ten years, the fund's performance has been within 24 basis points of the benchmark index, which aligns with its expense ratio and demonstrates solid management.

Vanguard Small-Cap Growth Index Fund ETF Shares (VBK)

IWP 1 year performance chart

Small-cap growth stocks have the best potential of increasing in value.  The fund uses an indexing investment strategy to replicate the performance of the CRSP US Small Cap Growth Index, which is a broadly diversified index of small US growth stocks. The advisor tries to replicate the target index by investing all (or nearly all) of its assets in the index's constituent equities, holding each stock in about the same proportion as its index weighting.

The CRSP US Small Cap Growth Index is a large index with over 700 companies. Despite the fact that the index includes market sizes well into the mid-cap range, the VBK nonetheless invests heavily in small-cap stocks. The top ten holdings account for only 6.6 percent of the company's total assets.

iShares MSCI EAFE Growth ETF (EFG)

iShares MSCI EAFE Growth ETF (EFG)

International markets provide some of the most promising growth prospects. The iShares MSCI EAFE Growth ETF aims to replicate the performance of an index of developed market equities with growth characteristics, excluding the United States and Canada.

The ETF is more diversified than its rivals in the US Large Cap Growth market. The top ten holdings account for over a quarter of the portfolio.  Over the last ten years, management has kept turnover to a minimum and kept its tracking error within 30 basis points of the benchmark index. That's a lot better than its cost-to-income ratio.  The EPG is a good choice if you want more international exposure in your portfolio.

ARK Innovation ETF (ARKK)

ARK Innovation ETF (ARKK)

The fund aims for long-term capital growth. ARKK is an ETF that will invest primarily (at least 65 percent of its assets) in domestic and overseas equity shares of companies that are related to the Fund's investing theme of disruptive innovation under normal conditions.

The launch of a technology-based product or service can revolutionize the way the world functions. Biotechnology, automotive, energy, information technology, and finance are among the industries in which it invests. While it has a worldwide focus, it is substantially invested in American companies, with domestic stocks accounting for more than 90% of the portfolio.

The expense ratio of the ARKK Innovation ETF is relatively high. It is, however, worth the price if you believe in its capacity to find the most creative companies and manage a portfolio for long-term success.

Summary

Growth ETFs provide investors with a low-cost and straightforward way to gain exposure to the world of quickly rising companies. A large-cap growth ETF invests in the stock of hundreds of publicly traded companies with strong sales and earnings growth. Over the last few years, growth investing has outperformed value investing. 

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