Why Growth Factor is Performing for Smart Beta ETFs

Among the various individual investment factors, the growth factor is one of the best this year. That scenario has been a boon for exchange traded funds, such as the Guggenheim S&P 500 Pure Growth ETF (NYSEARCA: RPG).

RPG, which is over 11 years old, follows the S&P 500 Pure Growth Index. That index “measures growth in separate dimensions across six risk factors: sales growth, earnings change to price, and momentum. The Pure Style Growth Index Series only includes those stocks from the parent index that exhibit strong growth characteristics, and weights them by style score,” according to Guggenheim.

As is the case with many growth and momentum ETFs, RPG is heavily allocated to the technology and consumer discretionary sectors. Those group’s combine for over 53% of the ETF’s weight.

The growth style, though, may be gaining momentum as investors turned to upbeat economic and earnings data, causing many to adopt a more risk-on attitude. Since growth stocks show high multiples, investors may expect that the companies will sustain a high growth rate. In contrast, traders may feel that firms with low multiples would continue to experience tepid growth.

Related: Small Cap ETFs Experience Major Shift in 2017