As measured by the S&P 500 Value Index, value stocks are performing admirably this year, though the group is lagging the parent index and its growth counterpart. That’s a long-standing theme. There have been sporadic periods of value strength over the past decade-plus. However, the overarching result during that span has been out-performance by growth stocks.
With some experts wagering that growth stock dominance won’t be ending anytime soon, investors may want to evaluate ETFs such as the WisdomTree U.S. Quality Growth Fund (QGRW). The $1.86 billion QGRW, which follows the WisdomTree U.S. Quality Growth Index, turns three years old in December. Over that time, the fund has returned nearly 140%, compared to 112% for the S&P 500 Growth Index.
Past performance isn’t a guarantee of future returns. That said, QGRW, heavily allocated to the Magnificent Seven stocks, appears to be at the right place at the right time. That thesis is fortified by Bank of America Research. The bank recently upgraded its view on large-cap growth ETFs to “favorable” from “neutral.”
“In this environment, growth has seen an upsurge in investor enthusiasm. Investors have doubled down on their growth exposure, with >$118bn of inflows to growth ETFs since 2022, more than double the $60bn of value ETF inflows over the same period,” said the bank in a new report.
QGRW Has Fundamentals on its Side
Storied growth stocks such as Alphabet (GOOGL) and Amazon (AMZN) have, over time, built compelling fundamental cases — a necessity when it comes to maintaining growth status. Those companies and others with attractive fundamentals dot the QGRW roster. That’s a potential plus for investors.
“An advantage of growth-factor strategies is that they aim to capture innovative investment themes as they flourish and to avoid them when they don’t. If a given company’s innovation produces above-average profits, it will likely qualify for a growth strategy; if the company falters, it will be rotated out of the strategy,” added Bank of America.
QGRW’s perks don’t end there. The ETF’s quality overlay is relevant at a time when many investors are fretting about valuations on mega-cap growth stocks. Put simply, above-average quality can make higher multiples easier to digest.
“However, today’s high valuations may be more justified than they seem. Over the past 20 years, the number of high-quality stocks in the S&P 500 has risen by more than 10%. What seems like a rich valuation may partly reflects the higher credit rating of many companies,” noted BofA.
The strength of QGRW member firms’ balance sheets is noteworthy. Indeed, history confirms that shares of low quality growth companies are often vulnerable during periods of economic malaise.
This article was prepared as part of WisdomTree’s general paid sponsorship of VettaFi | ETF Trends. This specific content within and any opinions expressed therein belong solely to VettaFi and do not reflect the opinion or analysis of WisdomTree, its employees, or its affiliates. Content published on VettaFi | ETF Trends is provided for educational purposes only and should not be considered investment or tax advice. For investment or tax advice, please consult a financial professional.
WisdomTree is an independent company, unaffiliated with VettaFi | ETF Trends. WisdomTree has not been involved with the preparation of the content supplied by VettaFi | ETF Trends. It does not guarantee, or assume any responsibility for its content.
For more news, information, and analysis, visit the Modern Alpha Content Hub.
