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A Growth ETF For October

ETF Professor

Among individual investment factors, growth is proving sturdy this year. While some investors are waiting on a value resurgence, the iShares S&P 500 Growth ETF (NYSE: IVW) is up more than 19 percent year to date, well ahead of the S&P 500.

IVW, which tracks the S&P 500 Growth Index, has rightfully earned its spot as CFRA Research's focus ETF for the month of October. CFRA rates IVW Overweight, the research firm's top rating given to exchange-traded funds.

The $19.1 billion IVW is one of the largest growth ETFs on the market. It holds 331 stocks, indicating that a significant portion of the S&P 500 can be considered growth fare.

Calendar Favors IVW

Historical seasonal data indicate considering growth stocks early in the fourth quarter could be rewarding as November marks the start of the strongest six-month period for equities.

“The November-April period that begins shortly has been a favorable one for growth-oriented strategies,” said CFRA director of ETF & mutual fund research Todd Rosenbluth in a note out Monday. “According to Sam Stovall, chief investment strategist for CFRA, the S&P 500 Growth index rose on average 6.7 percent in the period dating back to 1990, ahead of the 2.5 percent gain for the benchmark in the May-October period.”

As is the case with many growth funds, IVW is highly allocated to the technology and consumer discretionary sectors. Those are the ETF's largest and third-largest sector weights, respectively, combining for about 52 percent of the fund's roster. Healthcare is IVW's second-largest sector exposure at 16.2 percent.

Related Link: Tech Tempts, But It's Pricey

High Beta Benefit

“The S&P 500 Growth index benefits in part we think from its relatively high exposure to cyclical sectors that also performed the best during this seasonal six-month period,” said Rosenbluth.

IVW's top 10 holdings, which combine for about 29 percent of the ETF's weight, include familiar growth names such as Apple Inc. (NASDAQ: AAPL), Facebook Inc (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMZN) and Google parent Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL).

While some actively managed growth funds are performing well this year, historical data indicate that is not typical over the long term.

“In the three-year period ended June 2017, just 25 percent of actively managed large-cap growth mutual funds in the S&P Dow Jones Index Versus Active Scorecard (SPIVA) outperformed the S&P 500 Growth index,” said Rosenbluth. “On an equal-weighted basis, the 9.25 percent average gain among these 266 mutual funds lagged the index by 178 basis points.”

Related Link: A Global Staples ETF

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