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4 Top Ranked Growth ETFs Springing Solid Returns

By Zacks Investment ResearchETFsApr 21, 2015 12:41AM ET
www.investing.com/analysis/4-top-ranked-growth-etfs-springing-solid-returns-249064
4 Top Ranked Growth ETFs Springing Solid Returns
By Zacks Investment Research   |  Apr 21, 2015 12:41AM ET
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Spring is in full swing and economic activity across all the sectors will get a fresh lease of life, driving up overall demand and consumer confidence. The housing market in particular gain momentum with demand building up over the frigid winter for new homes and transportation – a barometer of broad economic health.

This spring brings more promises given solid job growth, rising wages, improving business conditions and of course a higher spending power buoyed by cheap fuel. Notably, consumer spending accounts for more than two-thirds of U.S. economic growth. After a lackluster first quarter, consumer spending will likely pick up in the second quarter.

This is especially true as the U.S. consumer confidence, as measured by the Thomson Reuters/University of Michigan index, climbed to the second highest level in eight years to 95.9 in April from 93 in March. This suggests a strong start to the spring selling season and that consumers are upbeat about economic growth.

Further, the Fed delayed the prospect of the first interest rate hike since 2006, suggesting cheap money flow for another quarter and the potential for further upside in stocks. Oil prices, which were endangering global growth and deflationary pressures, have rebounded strongly in recent weeks while U.S. dollar weakened slightly (read: 3 Energy ETFs Leading The Oil Rally).

In such a scenario in which the broader market sentiments have a predetermined positive direction, there is hardly any strategy as gainful as growth investing. This is basically a momentum play and a great strategy in a trending market (a market characterized by a prolonged uptrend). Growth stocks refer to those high quality stocks that are likely to witness revenues and earnings increase at a faster rate than the industry average. These stocks harness their momentum in earnings to create a positive bias in the market, resulting in rocketing share prices.

Moreover, Friday’s global sell-off could be viewed as a strong buying opportunity. The U.S. stocks tumbled on weak global cues, including concerns over the Greek default risk and restriction on Chinese stock buying borrowing, as well as disappointing earnings and signs of higher inflation.

With the U.S. economy expected to grow at a faster clip in the coming month buoyed by spring fever, the stock market is set to surge and result in outsized returns for the growth stocks. Given this, investors should cycle into the growth space in order to obtain a nice momentum play. While looking at individual companies is certainly an option, a focus on top ranked growth ETFs could be a less risky way to tap into the same broad trends.

Top Ranked Growth ETF in Focus

We have found a number of ETFs that have the top Zacks ETF Rank of 1 (Strong Buy) or 2 (Buy) in the growth space and are thus expected to outperform in the months to come (see: all the Top Ranked ETFs).

While all the top ranked ETFs are likely to outperform, the following three funds could be good choices to tap into the space. This trio has enjoyed a strong momentum and has led the broad market by wide margins over the past three months. This is because it has potentially superior weighting methodologies that could allow it to continue leading the growth space in the coming months.

Guggenheim Invest S&P MidCap 400 Pure Growth (NYSE:RFG)

This ETF provides exposure to the mid cap segment of the broad U.S. stock market by tracking the S&P MidCap 400 Pure Growth Index. The product has amassed $732.9 million in its asset base while sees light volume of around 25,000 shares. It charges 35 bps in annual fees from investors.

The fund holds 86 stocks, which are well spread across number of securities with none holding more than 2.8% of total assets. From a sector look, information technology takes the top spot at 22.2% while consumer discretionary, financials, health care and industrials round off the top five. The ETF surged 9.1% over the past three months and has a Zacks ETF Rank of 2 with a High risk outlook (read: Best Mid-Cap Growth ETFs for Q2).

iShares Russell 2000 Growth (ARCA:IWO)

This is one of the popular and liquid ETFs in the small cap space with AUM of $7.5 billion and average trading volume of 1 million shares a day. The fund provides exposure to a broad basket of 1,206 mid cap stocks whose earnings are expected to grow at an above-average rate relative to the market by tracking the Russell 2000 Growth Index. It is well spread out across components as each of these holds less than 1.1% of assets.

Sector wise, information technology and health care take the top two spots with one-fourth share each, leaving a decent allocation for the others. The fund charges 25 bps in annual fees from investors and gained 9.4% over the past three months. It has a Zacks ETF Rank of 1 with a High risk outlook.

iShares Morningstar Mid-Cap Growth (NYSE:JKH)

With AUM of $236.8 million, this product tracks the Morningstar Mid Growth Index. In total, it holds 199 mid cap securities with none accounting for more than 1.4% of assets. Consumer discretionary, information technology, industrials and health care take the top four spots with double-digit exposure each.

The ETF charges 30 bps in annual fees and trades in light volume of under 5,000 shares a day. It returned 9.4% in the same period and has a Zacks Rank of 2 with a Medium risk outlook.

Vanguard Small-Cap Growth (NYSE:VBK)

This ETF tracks the CRSP US Small Cap Growth Index, holding 736 small cap securities in its basket. The fund is widely diversified across a number of sectors and securities. Financials, industrials, health care, technology and consumer services make up for double-digit allocation and none of the securities hold more than 0.6% of total assets in the basket (read: Can These Top-Ranked Small Cap Growth ETFs Win in 2015?).

The product has AUM of $4.6 billion and trades in good volume of less than 141,000 shares. VBK is one of the low cost choices, charging just 9 bps in fees per year from investors. The ETF was up nearly 7.7% in the trailing three months and has a Zacks ETF Rank of 1 with a High risk outlook.

RFG - 3 Month Comparative
RFG - 3 Month Comparative



Bottom Line


With spring in the air and economic activities stepping up, these top ranked ETFs should continue their upward journey in the coming month beating the broad market index.

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4 Top Ranked Growth ETFs Springing Solid Returns
 

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4 Top Ranked Growth ETFs Springing Solid Returns

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