What Lies Ahead For Large-Cap Growth ETFs?

U.S. equities have been rallying lately on strong global growth and rising investor optimism. Moreover, positive earnings season and developments in President Donald Trump’s tax reform have also contributed to the gains.

The global economy is expected to witness growth of 3% through 2018, the Conference Board said in its November Global Economic Outlook 2018.

Market Movers

GDP growth for the United States was revised up to 3.3% in the third quarter compared with 3.1% in the previous quarter. The third quarter reading was revised from an initial reading of 3%. This was the strongest quarterly growth reading in three years.

Moreover, energy stocks contributed to the rally, as Brent prices crossed the $65 mark for the first time since 2015 owing to news of a key North Sea pipeline shutdown. Moreover, United States oil inventories decreased 7.38 million barrels in the previous week, way above Bloomberg’s expectations of a drop of 2.89 million barrels.

Risks Involved

Although the Senate passed the Republican tax reform, there are increased concerns about the differences in the versions of the House and Senate. A consensus has to be reached for the tax reform to become law. Although we witnessed sector rotation strategies initially in the wake of the Senate tax reform vote, because domestic companies are expected to benefit from the bill, uncertainty regarding the final version put a halt to that strategy (read: 3 ETF Areas May Come Under Pressure on Tax Reform).

Moreover, geopolitical risks weigh on the markets. Last month, North Korea launched a Hwasong-15 missile with improved technology that flew over Japan, per Korean Central News Agency (KCNA). Per United States Secretary of Defense James Mattis, this missile flew higher than all earlier missiles fired.

Owing to large-cap companies’ high international exposure, strong global growth is expected to be a benefit for these companies. Moreover, owing to the high uncertainty in the markets, we believe it is best to opt for low volatility. Hence, we will now discuss a few ETFs focused on providing exposure to the large-cap growth space.

PowerShares QQQ ETF QQQ

This fund is a popular ETF that maintains a hefty exposure to U.S. tech companies and tracks the Nasdaq 100 index.

It has AUM of $59.1 billion and charges a fee of 20 basis points a year. From a sector look, the fund has high exposures to Information Technology, Consumer Discretionary and Health Care with 60.5%, 21.2% and 10.3% allocation, respectively (as of Dec 11, 2017). The fund’s top three holdings are Apple Inc (NASDAQ:AAPL) , Microsoft Corporation (NASDAQ:MSFT) and Amazon.com Inc (NASDAQ:AMZN) with 12.2%, 9.0% and 7.7% allocation, respectively (as of Dec 11, 2017). The fund has returned 30.3% in a year and 31.4% year to date (as of Dec 12, 2017). It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

iShares Russell 1000 Growth ETF IWF

This fund is a popular ETF targeting large-cap U.S. companies and tracks the Russell 1000 Growth Index.

It has AUM of $40.1 billion and charges a fee of 20 basis points a year. From a sector look, the fund has high exposures to Information Technology, Consumer Discretionary and Health Care with 38.0%, 17.9% and 13.0% allocation, respectively (as of Dec 11, 2017). The fund’s top three holdings are Apple Inc, Microsoft Corporation and Amazon.com Inc with 7.0%, 5.0% and 3.6% allocation, respectively (as of Oct Dec 11, 2017). The fund has returned 26.4% in a year and 28.0% year to date (as of Dec 12, 2017). It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

Vanguard Growth ETF (BE:VUG)

This fund is a popular ETF targeting large-cap U.S. companies and tracks the MSCI US Prime Market Growth Index.

It has AUM of $31.3 billion and charges a fee of 6 basis points a year. From a sector look, the fund has high exposures to Information Technology, Consumer Services and Health Care with 27.9%, 19.6% and 13.2% allocation, respectively (as of Oct 31, 2017). The fund’s top three holdings are Apple Inc, Alphabet Inc (NASDAQ:GOOGL) and Amazon.com Inc with 7.3%, 5.7% and 4.2% allocation, respectively (as of Oct 31, 2017). The fund has returned 24.3% in a year and 25.9% year to date (as of Dec 12, 2017). It has a Zacks ETF Rank #1 with a Medium risk outlook.

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