There’s a bit of uncertainty on Wall Street to start 2022. The market continues to grapple with the lingering impacts of coronavirus and the risk of interest-rate increases disrupting the natural order of things. Thus, growth stocks – and by extension, growth exchange-traded funds (ETFs) – are facing a little more volatility and risk in the new year.
However, it’s important to remember the snapback we saw last summer after a somewhat predictable rise in COVID-19 caseloads across January in the wake of the winter holidays. And remember. The reason that we’re talking about rising interest rates is because of red-hot prices and a tight labor market.
It’s also worth noting that there are always going to be tactical opportunities in certain sectors or geographies where investors can tap into significant growth regardless of the macroeconomic backdrop.
If you’re interested in taking a bias toward growth either in the pursuit of long-term outperformance or simply because you see a near-term opportunity in 2022, growth ETFs are the way to go. These funds, which hold anywhere from dozens to hundreds of stocks, allow you to bet on growth broadly, or make tactical bets on slivers of the market – both without hitching your wagon to any one or two particular stocks.
Read on as we look at nine growth ETFs covering an array of strategies.
Data is as of Jan. 17. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.
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Vanguard Growth ETFCourtesy of Vanguard
Assets under management: $85.1 billionDividend yield: 0.5%Expenses: 0.04%, or $4 annually for every $10,000 investedThe Vanguard Growth ETF (VUG, $301.14) is the leader among large-cap growth options with a massive $85 billion under management. Its approach is simple and cost-effective, holding a group of about 280 primarily large-cap stocks with growth characteristics, and charging a trivial 0.04% in annual fees.
Perhaps unsurprisingly, VUG, which weights its holdings by market capitalization, is biased toward blue-chip technology stocks, with top holdings including Apple (AAPL) and Microsoft (MSFT), and technology representing about 50% of total assets at present. Indeed, the median market cap of all holdings is about $190 billion because VUG only includes the biggest growth names out there.
Of course, that probably won’t scare off investors who actually are looking for this kind of bent toward tech and away from sleepy sectors like telecom and utilities (which, by the way, represent just about 1% between the two of them).
VUG is a simple way to gain cheap, diversified exposure to the names that probably come first to mind when you’re thinking about growth. It’s one of the least sophisticated growth ETFs around, but it is popular for a reason because of its straightforward “set it and forget it” approach to growth via large U.S. stocks.
Learn more about VUG at the Vanguard provider site.
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Vanguard Small-Cap GrowthCourtesy of Vanguard
Assets under management: $14.9 billionDividend yield: 0.4%Expenses: 0.07%Many investors interested in growth opportunities look to small-cap stocks, and it’s no wonder why.
Even though some mega-cap stocks are classified as growth investments, it’s hard to imagine a trillion-dollar tech company doubling or tripling in short order. Meanwhile, the next generation of start-ups out there will be Wall Street’s future leaders.
The $36 billion Vanguard Small-Cap Growth ETF (VBK, $258.18) is one of the best growth ETFs to play this area of the market. Like VUG, this fund is simple and cost-effective: VBK provides exposure to more than 750 small U.S. companies with growth characteristics (with a median market capitalization of about $6.5 billion) and charges a meager 0.07%.
Many of VBK’s top holdings – including healthcare diagnostics company Bio-Techne (TECH), semiconductor play Entegris (ENTG) and construction materials firm Trex (TREX) – might not be on your radar. However, that’s what makes this a great growth play for many portfolios: Not only will VBK allow you to share in the profits when these smaller companies hit their stride, but its holdings won’t overlap with your more foundational holdings.
Top sectors in this growth ETF are technology and healthcare, with weightings of roughly 21% each.
Learn more about VBK at the Vanguard provider site.
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iShares Mid-Cap Growth ETFAssets under management: $14.6 billionDividend yield: 0.3%Expenses: 0.23%The “goldilocks” growth fund iShares Mid-Cap Growth ETF (IWP, $104.13) splits the difference between the prior Vanguard names by focusing on midsized U.S. stocks. These companies are neither so large that they need big numbers to post significant improvement in their top or bottom lines, nor so small that just a few bad quarters could really threaten operations.
The $14 billion fund has just under 400 total stocks, with top holdings including cybersecurity play Palo Alto Networks (PANW), commercial real estate giant Simon Property Group (SPG) and diabetes specialist Dexcom (DXCM) to name a few.
On a sector level, IWP is more biased toward information technology than many large cap funds out there with about 35% of assets in this sector. But again, for those seeking growth stocks, that might be more draw than deterrent.
If you’re looking for growth but don’t want to take on the larger risks that can sometimes come with younger and less-established corporations, IWP could be a nice compromise.
Learn more about IWP at the iShares provider site.
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iShares MSCI EAFE Growth ETFAssets under management: $13.1 billionDividend yield: 1.5%Expenses: 0.35%U.S. stocks aren’t the only the option for growth investors out there, of course, and the iShares MSCI EAFE Growth ETF (EFG, $104.67) is one shining example of that.
This growth ETF is a bit of alphabet soup, but it’s easy to understand when you parse it. The fund is benchmarked to an MSCI index of companies headquartered in Europe, Asia and the Far East, or EAFE, with a screening methodology that identifies stocks exhibiting strong growth characteristics when compared with their peers. And it predominantly focuses on large-cap stocks.
A few exemplary names at present include French luxury goods purveyor LVMH Moët Hennessy Louis Vuitton (LVMUY), Japanese electronics giant Sony Group (SONY) and U.K.-based spirits giant Diageo (DEO), the company behind brands such as Johnnie Walker whisky, Captain Morgan rum and Tanqueray gin. These are all corporations larger than $100 billion with powerful brands under their belt, and the only reason many investors don’t already have exposure to these blue chips is simply because they have headquarters overseas.
If you really want exposure to rising profits and sales regardless of geography, EFG is one of the best growth ETFs you can buy.
Learn more about EFG at the iShares provider site.
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Vanguard FTSE Emerging Markets ETFCourtesy of Vanguard
Assets under management: $13.1 billionDividend yield: 1.5%Expenses: 0.35%While not technically a fund built solely around growth stocks, the Vanguard FTSE Emerging Markets ETF (VWO, $104.67) is another interesting international investment because it is focused on fast-growing economies outside the developed world.
Right now, those regions that make up VWO include China as the top area of influence (35% of the portfolio), followed by Taiwan (20%) and India (15%). With the International Monetary Fund predicting a 5.6% growth rate for China’s GDP in 2022, and India looking even better at an 8.5% rate of economic expansion, these are clearly important regions to be looking at if you’re interested in growth.
Sector-wise, VWO is heavy in banks and tech; each sits around 19%, with financials the top sector by a hair. That’s not common in domestic growth funds, but firms such as the massive China Construction Bank (CICHY) provide the financial lifeblood for local growth and expansion.
You will find a few well-known names on the list, including Alibaba Group (BABA) and Taiwan Semiconductor (TSM). But with a deep lineup of more than 5,300 stocks, there are also a great many foreign companies you might have trouble investing in individually with your brokerage account.
Learn more about VWO at the Vanguard provider site.
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SPDR S&P Biotech ETFCourtesy of SPDR
Assets under management: $6.0 billionDividend yield: 0.0%Expenses: 0.35%Looking at specific growth-oriented industries, one area that is uncommonly interesting right now in the age of coronavirus is SPDR S&P Biotech ETF (XBI, $100.49). This growth ETF is laser-focused on gene editing companies, diagnostic firms, vaccine researchers, development-stage drugmakers developing cures for rare but serious diseases, and much more.
There are plenty of problems with the U.S. healthcare system serving actual patients, but when it comes to creating profits for investors, there are fewer places to find more reliable returns. Consider that according to Federal Reserve research, over a 20-year period where normal consumer prices rose just 2.2% annually, medical care grew at an average annual rate of 3.6% – roughly 70% faster than other spending categories.
XBI is well positioned to capitalize on this trend because it is full of companies developing the next generation of branded, high-margin healthcare products.
Structurally, XBI equally weights its lineup of roughly 200 stocks at every rebalancing to ensure no single company has an outsized impact on portfolio performance. However, a few representative examples of the kind of picks that make up this biotech fund are $6 billion gastroenterology specialist Arena Pharmaceuticals (ARNA) and $3 billion oncology drugmaker PTC Therapeutics (PTCT).
Learn more about XBI at the SPDR provider site.
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Global X Lithium & Battery Technology ETFCourtesy of Global X
Assets under management: $5.5 billionDividend yield: 0.2%Expenses: 0.75%One of the highest-flying growth ETFs over the past few years is, perhaps unsurprisingly, the specialized Global X Lithium & Battery Technology ETF (LIT, $83.26). This fund features a focused strategy that invests in electric vehicle companies, battery technology providers and miners that produce the elements like lithium that are necessary components for efficient energy storage.
Though highly specialized in its approach, however, LIT is not a niche fund. It has well more than $5 billion in assets under management, and its average volume is more than 1 million shares traded each day on Wall Street.
You’ll be unsurprised to find that electric vehicle icon Tesla (TSLA) ranks near the top of the list of about 40 holdings. But the top position in this ETF right now is actually a much lower-profile corporation: North Carolina-based lithium specialist Albemarle (ALB), at nearly 11% of the ETF’s assets
LIT shares are up an impressive 180% in the last 24 months thanks to continued growth in the electric vehicle and battery marketplace. However, it’s important to acknowledge that unlike other growth ETFs, this is a one-trick pony – and if and when this niche area of the market takes a hit, you can expect shares of this ETF to share in the pain.
That might not scare off some investors who are OK with a bit of volatility, but it’s worth acknowledging all the same.
Learn more about LIT at the Global X provider site.
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Amplify Online Retail ETFCourtesy of Amplify
Assets under management: $530.7 millionDividend yield: 0.0%Expenses: 0.65%While Amplify isn’t exactly a big asset manager like the other firms here, its tactical Amplify Online Retail ETF (IBUY, $79.74) is still plenty popular, with more than $500 million in assets at present.
It’s also well diversified despite a targeted approach and just 60 total positions. The modified equal-weight methodology ensures no single stock dominates the fund; each of the fund’s top 10 holdings are all below 3% of assets each. It also means that while some of the obvious e-commerce megastores like Amazon.com (AMZN) do make an appearance, they’re no more important than nichier players, from travel booking portal Airbnb (ABNB) to ridesharing giant Uber Technologies (UBER).
There’s no doubt that e-commerce is a megatrend here to stay. So if you want to play the growth potential that’s behind consumer spending but sidestep some of the risks associated with traditional brick-and-mortar retail, IBUY is one of the best growth ETFs you can snap up.
Learn more about IBUY at the Amplify provider site.
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ARK Innovation ETFCourtesy of Ark Invest
Assets under management: $13.2 billionDividend yield: 0.0%Expenses: 0.75%Catherine Wood, who boasts roughly 40 years of experience identifying and investing in innovation, founded the ARK Innovation ETF (ARKK, $80.24) in 2014. And since then, the fund has had one of the most enviable track records on Wall Street thanks to a focus on disruptive companies that are growing at red-hot rates. For instance, over the last five years, ARKK is up more than 260% compared with a total return (price plus dividends) of roughly 125% for the broad-based S&P 500 Index.
And that’s despite a downright terrible past 12 months or so.
ARKK’s investment strategy at present includes DNA and biotechnology stocks, automation and artificial intelligence companies, fintech innovators and other similarly dynamic names. Top positions include electric vehicles giant Tesla, video conferencing icon Zoom Video Communications (ZM) and remote medical provider Teladoc Health (TDOC) to give some examples.
While these picks and others have delivered phenomenal long-term performance, the past year has been downright awful for this $13 billion fund. Many once-red-hot names such as Zoom have fallen off a cliff for a number of reasons, from investors shifting away from the work-from-home trend to several wildly overpriced stocks finally coming back to earth.
But it’s worth acknowledging that aggressive growth investments are often quite volatile; it’s not uncommon for strategies like this to offer big moves in both directions.
Still, given the extraordinary returns when you measure ARKK in years instead of months, and the unique positioning of this fund to play growth across several dynamic sectors, aggressive traders might finally want to dip a toe in this growth ETF versus the more standard options out there.
Learn more about ARKK at the Ark Invest provider site.