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Large-Cap Growth ETFs Leading the Market

Sanghamitra Saha

Hopes of solid growth in the U.S. economy are high presently given the big promises made by President Donald Trump. Though the U.S. GDP growth data for Q4 came in lower than expected, investors and consumers seem to be paying less attention to it. At least, sound consumer sentiment gives such cues.

Upbeat Consumer Sentiment

The final reading of the University of Michigan's U.S. consumer sentiment increased to 98.5 in January 2017 compared with the preliminary figure of 98.1 and the December reading of 98.2. This marked the highest level since January 2004 and pointed to improved economic prospects over the long term.

The U.S. economy grew an annualized 1.9% sequentially in Q4, but fell shy off market expectations of 2.2%. However, this was the first reading and we may see upward revisions in the data ahead. Notably, the economy has been climbing steadily buoyed by recovering housing fundamentals, a healing job market and increasing consumer confidence.

Mixed Job Data Indicates a Delayed Fed Rate Hike

Meanwhile, a better-than-expected job report for the month of January came up on February 3. Though the report indicated a lower-than-expected rise in wages in January, this offered another favorable angle to equity investors.

The job data suggests that the U.S. labor market is definitely tightening, but not enough to survive the steady rise in inflation or speedier Fed policy tightening. Experts don’t see a rate hike from the Fed in its next meeting in March. Many have now shifted the timeline to June (read: January U.S. Job Data Mixed: Time to Buy These ETFs?).

Greenback & Bond Yields Lose Some Strength

The greenback declined due to mixed job numbers and the uncertainty over Trump’s debatable policy formulations on trade, immigration and the key finance sector. Overall, PowerShares DB US Dollar Bullish ETF UUP was down 1.7% in the last one month (as of February 8, 2017). Investors should note that large-cap stocks perform better in a falling dollar environment as these have wide foreign exposure.

The yield of 10-year U.S. Treasury notes slipped to 2.34% on February 8, 2017 from 2.48% at the start of the month. The possibility of a later-than-expected Fed rate hike may have put a cap on Treasury yields.  This ensures a few more days of cheap dollar environment.

Reassuring Earnings

Against a favorable operating backdrop for growth investing, things are shaping up positively on the earnings front. Earnings growth entered into the positive territory in Q3 of 2016 following five consecutive quarters of decline. For Q4, the S&P 500 is expected to see 8% earnings growth on 3.9% revenue growth, as per the Earnings Trends issued on February 8, 2017 (read: Ten Predictions for the ETF Industry in 2017).

Given this, several large-cap growth ETFs hit a 52-week high on February 8, 2017 and may continue to outperform ahead. Below we highlight a few of them.

PowerShares Dynamic Large Cap Growth ETF PWB

The fund is designed to provide capital appreciation while maintaining consistent stylistically accurate exposure. The fund charges 57 bps in fees.

iShares Morningstar Large-Cap Growth ETFJKE

The fund offers exposure to the large-capitalization U.S. equities that exhibit growth characteristics. It charges 25 bps in fees.

Vanguard Growth ETF VUG

The fund looks to track the largest growth stocks of the U.S. It charges 8 bps in fees (read: 5 Growth ETFs & Stocks Set for Explosive Gains in 2017).

Schwab US Large-Cap Growth ETF SCHG

The fund gives exposure to the large-cap growth segment of the Dow Jones U.S. Total Stock Market Index. It charges 4 bps in fees.

Guggenheim S&P 500 Pure Growth ETF RPG

The underlying index of the fund – the S&P 500 Pure Growth Index – reflects those S&P 500 companies that have strong growth characteristics as selected by Standard & Poors. The fund charges 35 bps in fees.

Vanguard Mega Cap Growth ETF MGK

The fund looks to track the largest growth stocks in the U.S. market. It charges 7 bps in fees.

SPDR S&P 500 Growth ETF SPYG

The underlying index of the fund – the S&P 500 Growth Index – measures the performance of the large-cap growth sector in the U.S. equity market. It charges 15 bps in fees.

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