Exchange-traded funds (ETFs) provide investors with two things: exposure to a specific market sector and a more diversified portfolio.
Some 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 guide, we highlight the top 10 best growth ETFs that we think could be profitable in 2021.
Where Can I Trade Growth ETFs?
The most convenient and inexpensive way to trade is by opening an account with an online broker. The alternative of using a full-service broker would give a dedicated stockbroker to guide you but 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.
What Is a Growth ETF?
A growth ETF is composed of a basket of stocks with the prospects of generating above-average returns. In other words, the stocks that make up the fund are more welcoming of volatility while driving growth, rather than companies that typically contribute to a steady portfolio.
A growth ETF carries more risk, but since the constituent stocks are not drawn from one industry, the risk is to some extent diversified away. Growth ETFs are usually traded on the assumption that the fast-growing stocks in the fund will continue their forward momentum.
Invest in Growth ETFs in 3 Steps
Open an Account
Opening a trading account with a broker allows you to trade not only growth ETFs but also a vast range of other financial instruments. Your account can be opened within minutes; just supply your name, address, email address, and any requested proof-of-ID documentation. Then fund your account by bank transfer, debit card, or (in some cases) PayPal.
Choose Your ETF
Review our list of suggestions and do your own research to determine which growth ETF(s) you should buy based on various criteria such as the expense ratio, assets under management, top allocations, and other stats. Although ETFs are inherently diversified because they contain several stocks, you can diversify further by buying more than one of them.
Place Your Trade
You can buy an ETF in the same way that you would buy a stock, by placing a market order during the trading day or by placing a limit order to be executed as soon as the market next opens. Also, like stocks, you can apply a protective stop order to your newly opened ETF position in case the price goes against you.
Best Growth ETFs to Buy Now
We have identified the best growth ETFs to buy this year.
- JPMorgan US Momentum Factor ETF
- Vanguard Russell 1000 Growth ETF
- iShares Russell 3000 Growth
- iShares Morningstar Large-Cap Growth ETF
- Invesco S&P 500® Pure Growth ETF
- Schwab US Large-Cap Growth ETF
- SPDR® Portfolio S&P 500 Growth
- Fidelity® Momentum Factor ETF
- Global X Thematic Growth ET
- Cabot Growth ETF
1. 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 are Tesla, Amazon, and Microsoft. The fund has about $139.94 million in assets under management at the time of writing. This growth ETF capped off 2020 with an almost 85% gain from the March 2020 dip that was caused by the coronavirus pandemic.
2. Vanguard Russell 1000 Growth ETF
Vanguard Russell 1000 Growth ETF (VONG) grew about 36% in 2020 and it continued to rise into May 2021. This fund has a large holding of Apple shares, which accounts for approximately 11.64% of its assets under management at the time of writing. The top three sectors that this ETF is exposed to are tech, consumer discretionary, and health care.
3. iShares Russell 3000 Growth ETF
iShares Russell 3000 Growth is similar to Vanguard Growth (IWF). For instance, Apple shares are also its largest holding, and the rest of its exposure is not too far apart from its competitor. One key difference between the two is that the iShares Russell 3000 ETF provides better diversification with its 450 holdings. The price of this ETF doubled between March 2020 and May 2021.
4. 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. This ETF has a relatively low expense ratio of 0.25%. In the five years from May 2016 to May 2021, it has significantly outperformed the Gbl ETF Equity - USA sector.
5. 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. In line with the equities bull market (and since the March 2020 correction) this ETF has appreciated nicely, but it suffers from a moderately high expense ratio of 0.35%.
Expert Tip on Investing in Growth ETFs“ When investing in growth ETFs, it is important to keep the risk component in mind. 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. One strategy you can use is to have low-volatility ETFs in your portfolio. Having such ETFs dulls the potential pain from downturns, fortifying your portfolio with steady returns in case things go wrong. ”- Ron Mendoza
Why Trade Growth ETFs?
Investors' fondness for growth stocks is primarily driven by the upside potential that the companies are assumed to have.
Most of these companies have a loyal fan base. Sometimes, they also enjoy a competitive advantage against their peers. Both of these 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 into.
However, the most significant risk in growth stocks is overpaying for an upside potential that fails to materialize or has already been realized.
Frequently Asked Questions
The number one ETF right now is JPMorgan U.S. Momentum Factor ETF. This is due to a combination of factors, including its net asset value (NAV), level of diversification, recent performance, and cost.
Most growth ETFs have performed well since the stock markets resumed their long-term bull runs after a significant pullback in March 2020.
There are many different kinds of ETF investors, including wealth managers, brokers, private banks. Sometimes ETF funds, like Global X Thematic Growth ET, also have significant ETF holdings.
ETFs and stocks share the same characteristic of being tradable in the market. However, stocks are individual securities whereas ETFs are funds composed of several stocks.
Yes, because investing in ETFs doesn't require the 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 US ETF industry alone surpassed $5 trillion last year.