Exchange-Traded Funds (ETF) generally provides investors two things: exposure in a specific market sector and a more diversified portfolio. In particular, growth ETFs allow you to invest in a bunch of stocks with inherent rapid growth potential.
However, with so many funds to choose from, it can be overwhelming to find the ones that will suit your investment objectives. So, in this article, we highlight the top 10 best growth ETFs that we think will be solid bets in 2021.
What Is a Growth ETF?
A growth ETF is composed of a basket of stocks with the prospects of generating above-average returns for an investor. In other words, the stocks that make up the fund are not companies that typically contribute to a steady portfolio but are rather more welcoming of volatility in driving growth.
Consequently, such an ETF carries more risk, but since the stocks in the fund are not categorized in one industry, the risk in a way is diversified. Growth ETFs are usually traded on the assumption that the fast-growing stocks in the fund will have the same momentum moving forward.
Invest in Growth ETFs in 3 steps
Open and Set Up Your Account
Before you can invest in growth ETFs, you need to open and set up your trading account first. Your trading account allows you access not just to growth ETFs but also a vaster range of tradable financial instruments. Most trading accounts also come with helpful tools and insightful research that are designed to help you in your investment decision making.
Develop Your Investment Objective
The next step is to develop an investment objective. You need to know what role ETFs will play in your portfolio and how it balances the rest of your market exposure. As mentioned, growth ETFs can generate higher returns but at the same time carry higher risk. Therefore, if you're already invested in a few sectors with virtually the same risk profile, you might need to consider how ETFs will ultimately benefit your overall objectives.
Choose Your ETF
Finally, once you've determined a growth ETF's role in fulfilling your investment objectives, the last step is to select the best fund. Here, your job is to compare similar ETFs with one another to decide which one you'll invest in. You can use specific metrics like the expense ratio, assets under management, top allocations, and other stats that will help you whittle down your choices.
Where Can I Trade Growth ETFs?
The best option for you to open your trading account is through a broker, mainly an online broker — and the reason is that it's the most convenient and inexpensive among all other alternatives. For instance, if you go for a full-service broker, you'd certainly have a dedicated stockbroker guiding you, but each trade could cost you up to $400 in commission.
Most online brokers ensure that their services are competitive, so the tools, research, and support they provide are comparable to having a personal investment advisor anyway (minus the high cost per trade). In any case, it all comes down to trade execution, which is what brokers do.
If you want someone to guide you in the process and are okay with the pricey commissions, then a full-service broker is the way to go. But if you're comfortable in conducting independent analysis, then you'd undoubtedly save more with a discount or online broker.
Best Growth ETFs to Buy Now
JPMorgan US Momentum Factor ETF
JPMorgan US Momentum Factor ETF (JMOM) makes it to the top of this list. This fund is well-invested in several industries, with tech making up a large share of its exposure. Its top-three biggest holdings include Tesla, Amazon, and Microsoft. And so far, the fund has about $139.94 million in assets under management.
This growth ETF nearly capped off 2020 with an 85% gain from its dip in March when the pandemic struck. As of writing, JPMorgan US Momentum Factor ETF trades at a NAV of $40.90.
Vanguard Russell 1000 Growth ETF
Vanguard Russell 1000 Growth ETF (VONG) grew about 36% in 2020 and currently trades at $258. This fund has a large holding of Apple shares, which is approximately 11.64% of its $3.22 billion assets under management. And the top three sectors it's exposed to are tech, consumer discretionary, and health care.
iShares Russell 3000 Growth
iShares Russell 3000 Growth is similar to Vanguard Growth (IWF). For instance, its Apple shares also constitute the majority of its net assets, and the rest of its exposure is not too far apart from its competitor. Both ETFs are also trading above the $250 level. However, one key difference between the two is that iShares Russell 3000 ETF provides better diversification with its 450 holdings.
iShares Morningstar Large-Cap Growth ETF
iShares Morningstar Large-Cap Growth ETF (JKE) is a fund that tracks the Morningstar® Large Growth IndexSM, which measures the performance of stocks with above-average growth that are based on Morningstar's index methodology. iShares Morningstar Large-Cap Growth ETF's assets under management are about $1.89 billion, and the fund has a relatively low expense ratio, 0.25%. This ETF's NAV as of the moment is $305.48.
Invesco S&P 500® Pure Growth ETF
Invesco S&P 500® Pure Growth ETF (RPG) invests 90% of its assets in the stocks that make up the S&P 500 Pure Growth Index. The sectors where the fund is exposed are tech, consumer discretionary, financials, industrials, healthcare, and several others. Its 3-month total return is a decent 16.06%. However, this fund's downside is its moderately high cost with an expense ratio of 0.35%.
Schwab US Large-Cap Growth ETF
Schwab US Large-Cap Growth ETF (SCHG) builds a portfolio of stocks included in the Dow Jones U.S. Large-Cap Growth Index. With $14 billion in assets under management, this fund is the largest one on this list.
SCHG did well last year with 37.86% but has been fairly consistent since it launched in 2009. The 5-year return of this ETF is 25.21%.
SPDR® Portfolio S&P 500 Growth
SPDR® Portfolio S&P 500 Growth (SPYG) follows the S&P 500 Growth Index and allocates about 80% of its nearly $10 billion assets in its securities. The top three sectors this fund is exposed to are technology, consumer cyclical, and communication services, and its significant holdings include Apple, Microsoft, and Amazon. SPYG currently trades at $57.95 and appreciated about 28% last year.
Fidelity® Momentum Factor ETF
Fidelity® Momentum Factor ETF (FDMO) tracks the Fidelity U.S. Momentum Factor Index. The fund invests in large and mid-capitalization U.S. companies that exhibit positive momentum signals.
In the last 52 weeks, FDMO ranged from $25.59 to $47.86 and currently trades at $47.81, its highest point since its inception in 2016.
Global X Thematic Growth ET
Global X Thematic Growth ETF (GXTG) is the best-performing growth ETF in the last 30 days with 23.32%. The fund also gained 59% in the turbulent 2020.
In terms of allocation, GXTG is diversified in diverse sectors, including tech, healthcare, financials, consumer goods, and many others. The fund primarily builds a portfolio of individual thematic ETFs, and its top holding is Global X Cannabis ETF, which makes up 20.52% of its net assets.
Cabot Growth ETF
Cabot Growth ETF (CBTG) is a particularly new fund from Cabot ETF Partners that launched in December last year. In the trailing 30 days, the fund had a 374.21% spike in its assets under management and has also performed well lately among growth ETFs with a 16.52% change, second behind Global X Thematic Growth ETF.
The fund builds a portfolio of U.S. large-, mid-, and small-cap companies in several markets such as research and development, next wave technologies, burgeoning consumer and business trends areas. It also utilizes Cabot Wealth Network's vast experience in research-based stock-picking.
Expert Tip on Investing in Growth ETFs
It's important when investing in growth ETFs to keep the risk component in mind. Understandably, it can be tempting to bet big on growth ETFs because of the abnormal returns they can produce, but this would not conform to one of investing's golden rules: diversification. As noted, ETFs are already composed of stocks from different industries, but if their risk profile is essentially alike, nothing offsets potential losses. One strategy you can use, especially if you're going to commit to being an ETF investor, is to have low-volatility ETFs in your portfolio. Having such ETFs represses the pain from downturns, fortifying your portfolio with steady returns in case things turn sour.
Why Trade Growth ETFs?
Investors' fondness for growth stocks is primarily driven by the upside potential that the companies are assumed to have. Even though most of these companies are non-dividend payers, they possess a loyal fan base that chooses their products and services no matter what.
Sometimes, they also enjoy a competitive advantage against their peers. Both of these two factors contribute to the bulk of their revenue. So, holding growth ETFs equates to owning a bunch of these stocks that seem to grow exponentially. It puts you in a position of owning these companies that investors continually pile money on.
However, the most significant risk in growth stocks is overpaying for an upside potential that fails to materialize or if it has already been realized.
Frequently Asked Questions
The number one ETF right now is JPMorgan U.S. Momentum Factor ETF, and this is due to a combination of factors, including its NAV, level of diversification, recent performance, and cost.
Most growth ETFs are performing well lately, and this is largely due to a more risk-on sentiment in the market that puts growth stocks in the limelight.
There are many different kinds of ETF investors, including wealth managers, brokers, private banks, and sometimes ETF funds also have significant ETF holdings like Global X Thematic Growth ET.
ETF and stocks share the same characteristic of being tradable in the market. However, stocks are individual securities, while ETFs are funds composed of several stocks.
Yes, because investing in ETFs doesn't require a certain level of knowledge and experience that would otherwise be necessary for choosing individual stocks.
Certain growth funds have billions of dollars in assets under management, especially if their investing methodology is all about acquiring large-cap stocks -- the U.S. ETF industry alone surpassed $5 trillion last year.