More than halfway through 2024, many advisors and investors are aware that growth stocks are delivering the goods. As of July 1, the average YTD return posted by the Nasdaq-100 and Russell 1000 Growth indexes is nearly 20%. That makes the 15.5% gain notched by the S&P 500 appear meager. Some growth outlets are outperforming the aforementioned benchmarks. Look at the WisdomTree U.S. Quality Growth Fund (QGRW). The fund, which follows the WisdomTree U.S. Quality Growth Index, is up 23.6% YTD.
Importantly, QGRW’s showing through the first six months and change of 2024 isn’t a one-off. Since the fund debuted in December 2022, it’s made a habit of beating old-guard growth indexes. That’s likely one reason the ETF is approaching $440 million in AUM in less than 20 months on the market. But there’s more to the story.
Understanding Why QGRW Is Delivering
One of the reasons QGRW is outpacing traditional growth indexes is that the ETF is overweight some of the best-performing, highest-quality growth stocks. Think Nvidia (NVDA), Microsoft (MSFT), and Amazon (AMZN) as just a few examples. That trio represents about 22% of the Nasdaq-100 Index (NDX), but accounts for over 27% of QGRW’s roster. Translation: QGRW’s methodology matters.
“The WisdomTree U.S. Quality Growth Index has outperformed the Russell 1000 Growth Index since its inception in November 2022 by more than 8.5%,” according to WisdomTree research. “The bulk of this outperformance can be attributed to high-growth sectors like Information Technology and Communication Services.”
Why QGRW Stands Out
Zeroing in on QGRW’s methodology, the ETF and its index stand apart from NDX and the Russell 1000 Growth Index because the WisdomTree gauge implements quality factors, including earnings criteria. Conversely, the primary weighting mechanism in NDX and the Russell 1000 is market capitalization. That means those indexes may be homes to some slower-growth and/or unprofitable companies that can be drags on performance.
Sure, it’s hard to quibble with the returns of those indexes, but if a higher-quality alternative is available — and one is thanks to QGRW — it merits attention. That’s particularly so for long-term investors who have time frames in which quality can prove especially potent.
“The WisdomTree U.S. Quality Growth Index has a rules-based methodology that reconstitutes on a semiannual basis each June and December. The design of the Index is to not bet on individual names or a basket of several names over the long run but to represent a relatively high-conviction allocation to 100 companies with high profitability and growth characteristics,” concluded WisdomTree.
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