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Grab These Growth ETFs to Gain From Year End Rally

Sweta Jaiswal, FRM

The year 2019 gave a great parting gift to investors with all the major US indices making new records. The broader market uptrend should not show any signs of slowing down, at least in early 2020. The probabilities of signing the Sino-US phase-one trade deal in the first half of January next year significantly boosted optimism among investors in December (read: ETF Strategies to Ride the Wall Street Bull Run).

 Let’s see what’s making the investment scenario look attractive.

Factors Behind the Momentum

The world’s two largest economies, the United States and China, recently agreed on a phase-one trade deal. Moreover, China recently announced a reduction in tariffs on some imported products starting 2020. It is planning to slash tariffs on 850 types of products to rates lower than most-favored-nation rates, provided the plan is approved by the State Council. The products will include some consumer goods like frozen pork, medicines for treating asthma and diabetes, and semiconductor products.

Beijing announced a new set of tariff exemptions on Dec 19. The exemptions will be valid for a year and were expected to come into effect on Dec 26. Notably, the tariffs that have already been levied are not likely to be refunded. The latest waiver incorporates products, such as metallocene high-density polyethylene and linear low-density polyethylene. Moreover, several refined oil products including white oil and food-grade petroleum wax are included in the list.

The upbeat jobs as well as manufacturing updates are indicative of a buoyant economy. Per Federal Reserve’s recently-released data, the manufacturing sector representing 11% of the U.S. economy, witnessed a 1.1% rise in output during November against 0.7% dip in October. Industrial output also inchedup 1.1% in November versus the 0.9% slip in October. The favorable U.S. homebuilders sentiment data for December also cheered investors. The metric hit an all-time high since June 1999. Moreover, the information on U.S. housing starts, new home sales and building permits has been bullish.

After three rate cuts in 2019, the Federal Reserve put a hold on its interest rate policy on Dec 11. It also hinted at keeping interest rates intact next year unless there is any drastic change in the economic outlook. The central bank kept the benchmark interest rates within the 1.50-1.75% band.

Why Growth ETFs?

Growth stocks are likely to witness revenue and earnings growth at a faster rate than the industry average. Growth funds tend to outperform during an uptrend. While there are plenty of options in the growth ETF world, we highlighted five funds that offer broad-based exposure to the U.S. stock market like Vanguard Growth ETF VUG, Schwab U.S. Large-Cap Growth ETF SCHG, iShares Core S&P U.S. Growth ETF IUSG, SPDR S&P 500 Growth ETF SPYG and Vanguard Mega Cap Growth ETF MGK.

VUG— up 36.3% year to date

The fund tracks the performance of the CRSP US Large Cap Growth Index. With a basket of 280 holdings, it has an AUM of $46.63 billion. It charges a fee of 4 basis points (read: Bet on Growth Investing Now: Top-Ranked ETFs & Stocks).

SCHG— up 35.6%

The fund tracks the performance of the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. With a basket of 380 holdings, it has an AUM of $9.23 billion. It charges a fee of 4 basis points.

IUSG— up 29.1%

The fund tracks the performance of the S&P 900 Growth Index. It provides exposure to a broad range of U.S. growth stocks, earnings of which are expected to grow at an above-average rate relative to the market. With a basket of 503 holdings, it has an AUM of $7.87 billion. It charges a fee of 4 basis points (read: A Spread of Growth ETFs at All-Time Highs).

SPYG — up 30%

The fund seeks to provide investment results that before fees and expenses, correspond generally to the total return performance of the S&P500 Growth Index. With a basket of 272 holdings, it has an AUM of $5.39 billion. It charges a fee of 4 basis points (read: Nasdaq Hits 9,000 for the First Time: ETFs to Benefit).

MGK — up 36.7%

The fund tracks the performance of the CRSP US Mega Cap Growth Index. With a basket of 115 holdings, it has an AUM of $5.19 billion. It charges a fee of 7 basis points (read: Decorating a Christmas Tree of Top-Ranked ETFs).