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Forget Geopolitics, Large-Cap Growth ETFs Still Strong Buys

Sanghamitra Saha
Tilly's (TLYS) closed the most recent trading day at $16.18, moving -0.98% from the previous trading session.

North Korea is not tiring from launching missiles, keeping countries like Japan and South Korea on tenterhooks and occasionally sparking off war fears. In fact, North Korea’s nuclear activity heated up the relation between Kim Jong-un and U.S. President Donald Trump with the latter issuing an incendiary rhetoric in mid-August (read: Multi-Asset ETFs for Uncertain Markets).

Apart from the North Korea issue, there are other geopolitical concerns related to Trump's Afghanistan speech. President Donald Trump recently commented that as many as 4,000 more U.S. troops will be employed to handle Afghanistan’s terror issue and that he will launch a political arrangement with the Taliban. The President also issued warnings to Pakistan, calling the country a “safe haven” for terrorist organizations (read: Trump's Afghanistan Rhetoric Helps/Hurts These ETFs).

If these were not enough, domestic political disagreements have been on, especially when it comes to the passage of some of Trump’s proposed policies. But even after all these restraints, one thing is for sure that 2017 can easily be credited to global growth.

Inside Upbeat Global Growth

In Q2, about 98.2% of the S&P 500 companies have reported 11.2% earnings growth on 5.6% revenue growth, as per the latestEarnings Trends. The growth rates besides Q1 are pretty higher than what we saw in previous quarters (read: Ten Predictions for the ETF Industry in 2017).

Corporates have been strengthening not only in the U.S. but also in Europe and other so-long besieged regions, as per Reuters. Analysts foresee earnings growth of about 13% this year in Europe, as per data compiled by Bloomberg. So far, European firms have reported year-over-year EPS growth of 16%, which is 3% above expectations, according to JPMorgan.

Same is the situation for Japanese stocks. A Reuters poll indicated that GDP in Q2 is expected to grow 2.5% year over year. The rate last scored in January-March 2016 (read: 4 Japan ETFs to Scoop Up Now).

Global economies are looking up this year. According to IMF, "we see broad-based recovery. The importance is that it's really broad-based in a way that it hasn't been in a decade,” as quoted on CNBC.

In fact, the gap between the GDP per capita of developed markets and emerging markets (EM) is narrowing. The EM segment is smashing this year on improving global economic fundamentals and moderately accommodative developed market central banks that are still keeping interest rates low and driving investors toward the relatively high-yielding EM bloc (read: EM ETFs: What You Need to Know Before Investing).

Why Large-Cap Growth?

This kind of global economic and corporate backdrop calls for large-cap growth ETF investing. Investors should note that large-cap stocks perform better in a falling dollar environment as these have wide foreign exposure. The U.S. dollar ETF — Powershares DB US Dollar Index Bullish Fund UUP — is down about 8.9% so far this year (as of August 31, 2017) (read: If Dollar Remains Weak, Bet on These ETFs & Stocks).

When speaking in Jackson Hole, the Fed chief Yellen did not talk about monetary policy with more clarity which was taken by investors as a dovish mode. Plus, the latest destruction by Hurricane Harvey will cause considerable loss of wealth. While repurchase of cars and remodeling of homes will be in the cards as these turn out to be necessities, households may cut back on discretionary items.  

If these were not enough, some economic readings like housing and inflation data came in weak for the U.S. Needless to say, a softer dollar on a dovish Fed and a slowly improving U.S. economy make a winning combination for large-cap growth ETFs despite all odds (read: 3 Reasons to Dump Small-Cap ETFs Now).

Large-Cap Growth ETFs That Retain Zacks Rank #1 (Strong Buy)

We at Zacks recently issued quarterly rank updates of ETFs. Below we highlight ETFs that kept up their #1 rank in recent revisions.

iShares Russell 1000 Growth ETF IWF

Vanguard Growth ETF VUG

iShares S&P 500 Growth ETF IVW

Guggenheim S&P 500 Pure Growth ETF RPG

Vanguard S&P 500 Growth ETF VOOG

Vanguard Russell 1000 Growth ETF VONG

ETFs That Were Upgraded to Zacks Rank #1

iShares Morningstar Large-Cap Growth ETF JKE

iShares Russell Top 200 Growth ETF IWY