Advertisement
U.S. markets closed
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • Dow 30

    39,807.37
    +47.29 (+0.12%)
     
  • Nasdaq

    16,379.46
    -20.06 (-0.12%)
     
  • Russell 2000

    2,124.55
    +10.20 (+0.48%)
     
  • Crude Oil

    83.08
    +1.73 (+2.13%)
     
  • Gold

    2,250.60
    +37.90 (+1.71%)
     
  • Silver

    25.08
    +0.32 (+1.30%)
     
  • EUR/USD

    1.0792
    -0.0037 (-0.35%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • GBP/USD

    1.2623
    -0.0015 (-0.12%)
     
  • USD/JPY

    151.3480
    +0.1020 (+0.07%)
     
  • Bitcoin USD

    70,784.79
    +1,844.77 (+2.68%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,952.62
    +20.64 (+0.26%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Growth ETFs Regain Momentum: Will This Last?

Growth stocks are the biggest laggards this year thanks to endless worries stemming from the China turmoil and an oil price collapse. But this trend seems to be reversing now as momentum has started to build up in the space. This is primarily due to the bargain hunting, an impressive jump in crude oil prices and receding fears of recession in the United States (read: Market Rout Crush Small Caps the Most: 7 ETFs in Focus).

Positive Trends

The developments have been positive across the globe over the last few weeks. The Chinese economy seems to be stabilizing with no further devaluation seen in its currency yuan, while hopes of stimulus from the central banks in Europe and Japan renewed confidence in global economic growth.

Additionally, signs of stabilization in oil prices after the 20-month collapse lifted investors’ spirits. Hopes of a deal to freeze oil output at the January levels and the latest International Energy Agency (IEA) data sparked of a rally in oil prices. The report showed falling U.S. shale output in the coming years that could shrink the global supply glut and rebalance the oil market in 2017. As per the agency, U.S. shale production is expected to fall 600,000 barrels a day in 2016 and another 200,000 barrels a day in 2017 (read: Oil ETFs in Focus on Oil Output Freeze Talks).
 
At the domestic front, a slew of encouraging data on retail sales, consumer spending, producer prices, factory production, inflation and weekly jobless claim reflects that the U.S. economy is regaining momentum after a sluggish fourth quarter.
 
As a result, the stocks saw a green revision, logging in the best weekly gains last week. The Wall Street was also on a rally mode at the start of this week. The rally has been broad based over the past five days with growth stocks outperforming the market. This is especially true as the ultra-popular growth fund – PowerShares QQQ ETF (QQQ) – climbed 5.4% in the same period compared with 4.4% gains for both the value fund (IWD) and the core fund (SPY).

Why Growth?

Growth investing is basically a momentum play and a great strategy in a trending market (a market characterized by a prolonged uptrend). Growth stocks refer to high-quality stocks that are likely to witness revenue and earnings increase at a faster rate than the industry average. These stocks harness their momentum in earnings to create a positive bias in the market, resulting in rocketing share prices. As such, pure growth funds tend to outperform during an uptrend (read: 3 Momentum Stocks & ETFs to Play).

Given this, it might be prudent to take a closer look at growth ETFs that led the market over the past five days and have the potential to continue doing so, especially if the current trend persists over the coming weeks.

Below we highlight five funds that could be excellent plays to ride out the recovering stock market and offer broad exposure. Each of these funds has a favorable Zacks ETF Rank of 3 or ‘Hold’ rating:

PowerShares Russell 2000 Pure Growth Portfolio (PXSG)

This fund follows the Russell 2000 Pure Growth Index and holds 305 securities in its portfolio. It is widely spread out across components as none of these holds more than 1.46% of assets. From a sector perspective, information technology and health care occupy the top two positions at 31% and 27.3%, respectively, while consumer discretionary and industrials hold the next two spots with a double-digit exposure each.

The fund is often overlooked by investors as depicted by its AUM of $24.7 million and paltry average daily volume of about 3,000 shares. Expense ratio comes in at 0.41%. The product gained 7.5% over the past five days.

iShares Morningstar Small-Cap Growth ETF (JKK)

This product tracks the Morningstar Small Growth Index. In total, it holds 272 small cap securities with none accounting for more than 1.02% of assets. Information technology accounts for the largest share of 28% in the basket while health care, financials, consumer discretionary, and industrials round off the top five spots (read: ETFs & Stocks from Top-Ranked Sectors to Buy Now).

The ETF charges 30 bps in annual fees and trades in light volume of about 3,000 shares a day. It has amassed $98.2 million in its asset base and returned 7% in the same period.    

PowerShares Russell Midcap Pure Growth Portfolio (PXMG)

This fund provides exposure to the mid cap growth segment by tracking the Russell Midcap Pure Growth Index and holds 136 securities in its portfolio. It is widely spread out across components as none of these holds more than 2.04% of assets. From a sector perspective, information technology occupies the top position at 30.3%, while consumer discretionary (26.6%), health care (18.2%) and industrials (12.7%) round off the next three spots.

The fund also has a lower level of $61.6 million in AUM and a light average daily volume of about 7,000 shares. It charges 39 bps in annual fees and gained about 7% in the same period.

Vanguard Small-Cap Growth ETF (VBK)

This ETF tracks the CRSP US Small Cap Growth Index, holding 736 small cap securities in its basket. The fund is widely diversified across sectors and securities. Financials, industrials, technology, health care, and consumer services make up for double-digit allocation each. Additionally, none of the securities holds more than 0.7% of total assets in the basket (read: Can These Growth ETFs Winners of 2015 Shine in 2016?).
 
The product is one of the popular choices in the growth space with AUM of $3.8 billion and low cost choices, charging just 9 bps in fee per year. Volume is good, exchanging 184,000 shares a day on average. The ETF was up nearly 6.3% in the past five days. 
 
iShares Morningstar Mid-Cap Growth ETF (JKH)

With AUM of $192.3 million, this product focuses on mid cap growth stocks and follows the Morningstar Mid Growth Index. In total, it holds 192 securities with none accounting for more than 1.7% of assets. Information technology, consumer discretionary, industrials, health care and financials are the top five sectors accounting for a double-digit exposure each.

The ETF charges 30 bps in annual fees and trades in a light volume of around 4,000 shares a day. It added 6.1% in the same period.
 












Bottom Line

The upward journey of these ETFs will likely continue in the coming weeks given the positive news flow from the U.S. economy and easing global fears. However, China and oil price uncertainty might keep the fund’s return in check.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
PWRSH-F P SM GR (PXSG): ETF Research Reports
 
ISHARS-MO SC GR (JKK): ETF Research Reports
 
PWRSH-F P MD GR (PXMG): ETF Research Reports
 
VIPERS-SC GRWTH (VBK): ETF Research Reports
 
ISHARS-MO MC GR (JKH): ETF Research Reports
 
NASDAQ-100 SHRS (QQQ): ETF Research Reports
 
ISHARS-RS 1K VL (IWD): ETF Research Reports
 
SPDR-SP 500 TR (SPY): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Advertisement