S&P 500: Growth stocks like these add value by a wide margin

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Just when it looked like value stocks were the place to be, growth stocks rallied. And ETFs offer investors a way to play on this trend.




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The SPDR Portfolio S&P 500 Growth ETF (SPYG) is up 5.4% over the past 50 trading days. That puts it well ahead of the SPDR Portfolio S&P 500 Value ETF (SPYV), which fell 3.2% during that time. Growth stocks haven’t outperformed value by such a wide margin since August 2021, says Nicholas Colas of DataTrek Research.

“Growth has outperformed value by a statistically unusual amount over the past 50 days in US large and small caps,” Colas said.

Where does the strength of growth come from?

Much of the recent growth outperformance over the past 50 trading days has come from the consumer discretionary and technology sectors.

The SPDR Consumer Discretionary ETF (XLY) is up more than 8% during this period. That’s a bigger gain than any of the 11 sectors in the S&P 500. Meanwhile, the Technology Select Sector SPDR ETF (XLK) is up 4.5% over the past 50 days. It’s a technological breakthrough that S&P 500 investors have been patiently waiting for all year.

For instance, Enphase Energy (ENPH), a pure growth technology in sustainable energy, has seen its shares soar more than 110% in the past 50 trading days. And pure growth business and auto parts seller Auto area (AZO) has seen its shares climb 55.6% in the past 50 days.

But how to capture part of these gains through growth stocks? ETFs are a diversified way to add growth to your portfolio.

Choosing S&P 500 Growth ETFs

It’s important to first understand the investment logic of growth stocks now, says Todd Rosenbluth, head of research at VettaFi. And it comes down to the moves the Federal Reserve is making.

“With inflationary pressure starting to fade and investors more confident that the Federal Reserve is going to be able to stave off a recession, risky growth strategies are being rewarded,” Rosenbluth said.

Don’t make the mistake, however, of thinking that all ETFs with the word “growth” in their name are interchangeable. “Not all growth ETFs are built equally,” according to Rosenbluth.

The largest large-cap growth ETF in the United States, the Vanguard Growth ETF (VUG) with $76.9 billion in assets, is also among the cheapest. Its annual contribution is only 0.04%. But it is also one of the best performers this year, up more than 6%. It is passively managed, but based on an index that filters out growth companies. Metrics companies must take to be part of the ETF include expected long-term earnings growth and return on assets. More than 250 companies meet ETF requirements.

The other two most important growth ETFs are also worth a look, says Rosenbluth. But they are very different. “iShares S&P 500 Growth ETF (IVW) and iShares Russell 1000 Growth ETF (IWF) are both market-cap-weighted growth ETFs with high concentrations in Apple (AAPL), Microsoft (MSFT) and Amazon.co.uk (AMZN),” he said. “But there are differences between them. For example, IVW has a stake in the top 10 of Metaplatforms (META), but the action does not belong to the IWF.”

Some growth ETFs attempt to amplify their growth nature a bit. “Invesco S&P 500 Pure Growth (RPG) is more diversified at the stock level and focused on the faster growing companies in the S&P 500 Index. It owns companies like Enphase Energy and NRG Energy (NRG),” Rosenbluth said.

Know the growth risks

But before embarking on growth ETFs, Colas is cautious. When growth continues as fervently as it does now, value stocks tend to come back, Colas says. “It may take a month or two (like 2020) or happen quickly (like 2021), but the value is coming back into favor,” he said. “Healthcare, industrials and financials are the key sectors to rebound value names.”

Top Growth ETFs

All outperform S&P 500 value stocks’ 3.2% decline this year

ETFs Symbol Assets (billions of dollars) Spending rate Stock at 50 days % ch.
Vanguard Growth (VUG) $76.9 0.04% 6.4%
iShares Russell 1000 Growth (IWF) 63.9 0.18% 5.2%
iShares S&P 500 Growth (IVW) 31.5 0.18% 5.6%
Schwab US Large-Cap Growth (SCHG) 15.1 0.04% 7.0%
SPDR S&P 500 Growth Portfolio (SPYG) 14.4 0.04% 5.4%
Vanguard Mega Cap Growth (MGK) 11.7 0.07% 6.5%
Vanguard Russell 1000 Growth (VONG) 7.5 0.08% 5.3%
Vanguard S&P 500 Growth (VOOG) 7.1 0.10% 5.5%
iShares Russell Top 200 Growth (IWY) 4.8 0.20% 5.0%
Invesco S&P 500 Pure Growth (RPG) 2.5 0.35% 3.6%
Sources: IBD, S&P Global Market Intelligence, ETF.com

Follow Matt Krantz on Twitter @mattkrantz

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