Growth Funds See Inflows While Investors Exit Out of Value Funds

Pandemic or not, the value versus growth debate rages on and data thus far has been favoring the latter. A number of investors headed for the exits on value and a procession of them headed towards the growth entrance.

“U.S. investors have ramped up investments in growth funds over the past few months on expectations of higher returns and safety, while they dumped value funds despite cheaper prices after this year’s pandemic-linked selloff,” a U.S. News and Money report noted. “Data from Lipper showed U.S.-growth funds attracted $17.6 billion in April and May, while value funds witnessed outflows worth $16.9 billion.”

“A strong argument for the growth side is that the largest companies like Apple, Amazon, Google, etc., have grown their earnings power to the point where on an operational basis, they generate so much cash and can finance anything they want to do with their stock, or by borrowing,” said Yale Bock, founder of YH & C Investments in Las Vegas.

“Investors only want to own those entities because they are all large, safe, and have a history of being able to generate high returns on capital along with strong top-line growth.”

Investors looking at growth options can consider the Vanguard Growth Index Fund ETF Shares (VUG). VUG seeks to track the performance of a benchmark index that measures the investment return of the CRSP US Large Cap Growth Index.

The fund employs an indexing investment approach designed to track the performance of the index, a broadly diversified index predominantly made up of growth stocks of large U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

A Multi-Factor Approach with Small Caps

Small cap equities can also offer investors growth opportunities as well, and investors looking to do so using a multi-factor strategy can use the Principal U.S. Small-Cap Multi-Factor Index ETF (PSC). PSC seeks investment results that closely correspond, to the performance of the Nasdaq US Small Cap Select Leaders Index.

The fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities of companies that compose the index. The index uses a quantitative model designed to identify equity securities (including growth and value stock) of small-capitalization companies in the Nasdaq US Small Cap Index (the “parent index”) that exhibit potential for high degrees of sustainable shareholder yield, pricing power, and strong momentum, while adjusting for liquidity and quality.

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