While the S&P 500 index has barely eked out a return this year, investors may find exchange traded funds that track the growth category are outpacing the benchmark.
Growth stocks whose company earnings are expected to rise at an above-average rate have been outperforming. Year-to-date, the iShares S&P 500 Growth ETF (NYSEArca: IVW) rose 6.3%, Guggenheim S&P 500 Pure Growth ETF (NYSEArca: RPG) advanced 5.7%, Vanguard S&P 500 Growth ETF (NYSEArca: VOOG) gained 6.3% and SPDR S&P 500 Growth ETF (NYSEArca: SPYG) increased 6.0%. In contrast, the SPDR S&P 500 ETF (NYSEArca: SPY) was up 3.4% so far this year. [Growth Stock ETFs Could Pick Up Speed In Second Half]
The growth ETFs include heavy tilts toward fast growing consumer cyclical, technology and healthcare stocks.
While some may see the outperformance in growth stocks as short-lived and potentially a sign of a relative decline for the group, RBC’s chief U.S. market strategist, Jonathan Golub, argues that the macro environment currently supports the move, reports Alex Rosenberg for CNBC.
“In a slower-for-longer economic environment, secular growth companies—those less dependent on GDP—should outperform,” Golub said in a note. “Furthermore, an analysis of these names indicates that their top-line fundamentals should continue to improve relative to the broad market.”
Golub also believes the outperformance in the asset class category will persist through a rising interest rate environment.
“We actually looked at what happened to growth stocks when interest rates rise, and what you find is that those are the days that they do the best,” Golub told CNBC.
Technical analyst Craig Johnson of Piper Jaffray also anticipates the bullish trend to continue.
“Growth stocks have been outperforming value stocks, they have been since the end of Q1 2014, and I don’t see any reason for that to change,” Johnson told CNBC. “I agree that growth stocks are going to continue to work, and that is really where we want to be at this point in time.”
Value stocks have been relatively flat for the year. For instance, year-to-date, iShares S&P 500 Value ETF (NYSEArca: IVE) was up 0.2%, Guggenheim S&P 500 Pure Value ETF (NYSEArca: RPV) dipped 1.7%, Vanguard S&P 500 Value ETF (NYSEArca: VOOV) was 0.3% higher and SPDR S&P 500 Value ETF (NYSEArca: SPYV) was up 0.2%.
The value ETFs lean toward the financial sector, which remains one of the cheapest areas of the market on a price-to-earnings basis, along with a significant position in the downtrodden energy sector.
iShares S&P 500 Growth ETF
For more information on the S&P 500, visit our S&P 500 category.
Max Chen contributed to this article.