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
Value stocks typically trade at cheaper prices relative to fundamental measures of value, such as earnings and the book value of assets. In contrast, growth stocks tend to run at higher valuations since investors expect the rapid growth in those company measures.
Cyclical stocks, like materials, industrials, energy and technology companies, are more economically sensitive and do well when the economy is improving. With the Federal Reserve set to hike rates, the rising rate environment would signal a better economic outlook. The healthcare and industrial sectors combine for over 27% of RPG’s roster.
Up 17% year-to-date, RPG hit a record high on Tuesday. Investors have added $206 million to RPG this year. RPG holds 114 stocks and none of the ETF’s holdings command weights of more than 3.16%, indicating the ETF is not vulnerable to single stock risk.
For more on smart beta ETFs, visit our Smart Beta Channel.