The S&P 500’s 1.8% year-to-date is not going to impress most investors, but one trend worth noting among broader market exchange traded funds is the out-performance offered by growth and momentum funds over value fare.
The iShares S&P 500 Growth ETF (NYSEArca: IVW) is a prime example. With a year-to-date gain of about 5.6%, the $13.5 billion IVW looks impressive, at least relative to a standard S&P 500 fund. Investors who have a strong conviction in the continued equities market rally can target the faster moving growth and momentum stocks – growth stocks are comprised of companies that are expected to grow earnings at an above-average rate. [Expanding Economic Conditions Should Favor Growth Stock ETFs]
“Through July 28, the S&P 500 Growth Index, up 4.9% was outperforming the broader S&P 500 Index’s 1.7% gain and the 1.9% decline for the S&P Value Index. According to Sam Stovall, U.S. equity strategist for S&P Capital IQ, this late in an economic and stock market cycle, investors tend to gravitate toward growth-oriented stocks, as they don’t believe there’s time to wait for value plays to orchestrate a turnaround. Further, he pointed out that earnings per share (EPS) growth should be stronger for growth companies,” said S&P Capital IQ in a recent research note.
IVW, which tracks the S&P 500 growth index, predictably places a deeper emphasis on technology and health care stocks than a standard S&P 500 ETF. For example, IVW’s combined weight to those sectors is nearly 51%, but those sectors account for just over 35% of the S&P 500. All of the ETF’s top 10 holdings are either technology, consumer discretionary or health care stocks.
Low-cost, highly liquid broad market ETFs, some of which are among the largest funds in the industry, are favored by advisors, strategists and other professional investors when building tactical ETF portfolios. IVW, which holds nearly 330 stocks, charges just 0.18% per year.