This year, the growth factor resumed its outperformance of the value factor, benefiting a host of exchange traded funds along the way. Investors can easily access growth stocks via ETFs, whether be by sector funds or more diversified products that emphasize the growth factor. There are over 170 US-listed ETFs are considered growth funds.
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Plenty of those growth ETFs are establishing lengthy records of topping their value-oriented rivals. Many value ETFs are heavily allocated to the financial services sector, one of this year's most disappointing groups, and 2017's worst-performing sector, the energy sector.
Over the past nine years, value only outperformed growth once (in 2012), making last year's rotation into value notable, said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Thursday. Prior to last year, and going back to the years leading into the financial crisis, investors had favored growth stocks as a lack of economic growth made it difficult for value oriented stocks to perform well.
Good Ideas Among Growth ETFs
Some of the most venerable names among growth ETFs include the iShares S&P 500 Growth ETF (IVW) and the Vanguard Growth ETF (VUG). IVW and VUG, homes to a combined $47.4 billion in assets under management, are up an average of 19.4 percent year-to-date compared to a gain of 13 percent for the S&P 500.
IVW follows the S&P 500 Growth Index and holds 330 stocks. The ETF allocates 36.3 percent of its weight to technology stocks, meaning the combined weights of healthcare and consumer discretionary, the next largest sector weights in the ETF, do not exceed IVW's technology exposure.
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A Big Dichotomy
CFRA has been keeping a close eye on the growth versus value dichotomy, said Rosenbluth. The S&P 500 Growth index has advanced 17.6% year-to-date, and the S&P 500 Value Index is 4.6% higher since the start of the year. In April, CFRA signaled that we expected growth to be the leader this year as economic uncertainty would weigh on the market, especially in the near term. While valuation for the growth index, at an average price-to-earnings (P/E) ratio of 29.4x, is expensive compared to the overall S&P 500 as well as the technology sector, we note that the Sharpe ratio is attractive.
As CFRA notes, the best six-month period for stocks commences in November. That also marks the time of year when cyclical growth stocks can start outperforming broader benchmarks, so investors may want to consider ETFs such as IVW and VUG now.
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