Are growth stocks back? New data suggests that, after falling out of favor with investors earlier this year, growth stocks have rebounded.
While a sustained bull market fueled the popularity of growth stocks for years, investors turned to value stocks in the first half of the year as the market slipped into bear territory. But according to a report from Investment Metrics, growth equities beat value stocks for the second consecutive month in July.
Per the report, half of the growth subfactors outperformed the broad U.S. market, while all value subfactors saved one failed to beat their benchmark. Markets in Europe behaved similarly, with all growth subfactors outperforming by at least 30 basis points in July, while all value subfactors lagged their benchmark, the report said.
In August, Steve Reid, client success manager at Investment Metrics subsidiary Style Analytics told Institutional Investor that he’s noticed the potential for “maybe a reversion back toward a growth trend” over the past three months. He noted, however, that this rally within growth may not last forever.
“It’s been a two-month rally for growth, but there’s going to be a lot of risks that could bring value back into favor,” Reid added. “Any kind of increasing rates [or]geopolitical disruption would be more awful to growth [than to value].”
Investors looking to take advantage of this rally in growth stocks before it peaks may want to consider the American Century Focused Dynamic Growth ETF (FDG) and the American Century STOXX U.S. Quality Growth ETF (QGRO).
FDG seeks long-term capital growth through investments in a focused number of large- and mid-capitalization U.S. growth stocks. The fund uses a high-conviction strategy designed to invest in early-stage, rapid-growth companies with a competitive advantage, high profitability, growth, and scalability to sustain their leading positions.
QGRO, meanwhile, tracks the iSTOXX American Century USA Quality Growth Index, which tries to identify U.S. companies with higher growth potential and stronger financial fundamentals relative to rivals. QGRO’s stock selection process is broken down into high-growth stocks based on sales, earnings, cash flow, and operating income, along with stable-growth stocks based on growth, profitability, and valuation metrics. The fund aims to have 35% to 65% of its portfolio in high-growth stocks and 30% to 65% in so-called stable growth companies that exhibit attractive profitability and valuation.
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