Play a Growth Comeback With a Touch of Quality Using This ETF

With a Fed pause forthcoming and the expectation of fewer interest rate hikes, investors may be looking to add growth to their portfolios once again. That said, to play defense, they may also want to add a touch of quality with their growth via the American Century STOXX U.S. Quality Growth ETF (QGRO).

The decade-long bull run following the Financial Crisis in 2008 saw growth stocks soar to higher heights. Enter the pandemic in 2020, and the momentum came to a halt as investors pivoted out of growth and into more value-/quality-oriented holdings.

Now, as global central banks look to be getting inflation under control, a risk-on sentiment is permeating back into the capital markets. That said, the growth factor is looking to make its comeback.

“In the period that began after the 2008 financial crisis and lasted until the beginning of the Covid-19 pandemic, growth stocks widely outperformed value stocks,” a Forbes Advisor article said. “Value outperformed growth during the challenging years of 2020 and 2022. This year, growth stocks have roared back to life once again, overtaking value stocks.”

Quality Growth Exposure

When it comes to growth, holdings don’t have to be small-cap stocks with plenty of potential and high levels of risk. As such, QGRO focuses on large- and mid-cap companies with the propensity for growth and the ability to weather a storm during a downtrend.

With over 200 holdings (as of April 30), the fund also avoids concentration risk. Additionally, top holdings don’t exceed 3.28% of the fund’s allocation.

The fund, with its 0.29% expense ratio, tracks the iSTOXX American Century USA Quality Growth Index, which tries to identify U.S. companies that have higher growth potential and stronger financial fundamentals relative to rivals. Having strong fundamentals is especially crucial if a recession were to hit the U.S. economy.

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%–65% of its portfolio in high-growth stocks, and 30%–65% in so-called stable-growth companies that exhibit attractive profitability and valuation.

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