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Inflation in the United States edged down for the second consecutive month in November, bolstering the bets that the Fed should keep interest rates steady at current levels during spring. This has powered a stock market rally as all three major indices rose to the highest level since early 2022. The Dow Jones, S&P 500 and Nasdaq closed at their highest levels since Jan 4, 2022, Jan 14, 2022 and Mar 29, 2022, respectively (read: ETFs to Play Dow Jones' Solid Catch-Up).
Investors seeking to capitalize on this trend could invest in growth ETFs. While there are many ETFs in the space targeting the growth segment, we have highlighted the five most popular options. These have a Zacks ETF Rank #2 (Buy), suggesting their continued outperformance. These include Invesco QQQ (QQQ - Free Report) , Vanguard Growth ETF (VUG - Free Report) , iShares Russell 1000 Growth ETF (IWF - Free Report) , iShares S&P 500 Growth ETF (IVW - Free Report) and Schwab U.S. Large-Cap Growth ETF (SCHG - Free Report) .
Behind the Inflation Numbers
The Consumer Price Index rose 3.1% year over year in November, down from the annual rise of 3.2% in October. The index inched up 0.1% from last month. Inflation has now fallen significantly from a 40-year high of 9.1% in June 2022.
Much of the relief came from the drop in energy prices. Overall, energy prices declined 5.4% from the year-ago month, with gasoline prices dropping 8.9%. However, higher shelter and food prices offset the decline in energy prices (read: Inverse Energy ETFs Rise Amid Steep Decline in Oil).
Shelter prices, which make up about one-third of the CPI weighting, increased 0.4% from the prior month and were up 6.5% year over year. Meanwhile, food prices climbed 2.9% year over year and 0.2% from the last month.
Prices in other areas — services such as restaurants, used cars and auto insurance — also continued to rise. Used vehicle prices rose 1.6% in November after declining for five straight months, while restaurant prices rose 0.4% from October for the third straight month, leaving them 5.3% more expensive than the year-ago month.
The so-called core inflation, which strips out volatile components such as food and energy prices, remained steady at a 4% annual increase, according to the latest data from the Bureau of Labor Statistics. It climbed 0.3% after a 0.2% rise in October.
The data has resulted in a shift in expectations regarding the Federal Reserve's interest rate policy. Previously, markets had been pricing in a rate cut as early as March 2023. However, following the release of the data, the likelihood of a March rate cut fell to 43.7% from about 50%, with a higher probability (around 78%) of a cut in May, per CME FedTool Watch.
Why Growth?
Growth investing focuses on capital appreciation rather than annual income or dividends. It is a stock-buying strategy that aims to profit from companies that grow at above-average rates compared to their industry or the market. This is a more active attempt versus the value to build up the portfolio and generate more return on capital investment.
Growth funds generally tend to outperform during an uptrend. However, these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility, especially compared to value stocks.
Invesco QQQ provides exposure to the 101 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq 100 Index. Information technology accounts for 57% of the assets, while consumer discretionary makes up for 18.7% share.
Invesco QQQ is one of the largest and most popular ETFs in the large-cap space, with an AUM of $218.2 billion and an average daily volume of 47 million shares. Invesco QQQ charges investors 20 bps in annual fees.
Vanguard Growth ETF offers exposure to the growth segment of large-cap equities and follows the CRSP US Large Cap Growth Index. Vanguard Growth ETF holds 221 stocks in its basket, with a higher concentration on the top two firms. Technology dominates the fund’s portfolio at 53.1%, while consumer discretionary and industrials round off the next two sectors with a 21% and 8.8% share, respectively.
Vanguard Growth ETF has AUM of $100.8 billion and an average daily volume of 943,000 shares. It charges 4 bps in fees per year.
iShares Russell 1000 Growth ETF provides exposure to large and mid-capitalization U.S. equities that exhibit growth characteristics by tracking the Russell 1000 Growth Index. iShares Russell 1000 Growth ETF holds 442 securities in its basket with a tilt toward the information technology sector, while consumer discretionary, communication and healthcare receive double-digit exposure each.
With AUM of $78.2 million, iShares Russell 1000 Growth ETF trades in heavy volume of around 1.3 million shares a day on average and charges 19 bps in annual fees.
iShares S&P 500 Growth ETF tracks the S&P 500 Growth Index and holds 239 stocks in its basket. iShares S&P 500 Growth ETF is heavily concentrated on the top firm, with double-digit exposure. The ETF is skewed toward information technology at 37.5%, while health care, and consumer discretionary round off the next two spots with a double-digit exposure each (read: What Lies Ahead of S&P 500 ETFs in 2024?).
iShares S&P 500 Growth ETF charges 18 bps in annual fees and has amassed $35.9 billion in its asset base. The fund trades in an average daily volume of 2 million shares.
With AUM of $21.8 billion, Schwab U.S. Large-Cap Growth ETF follows the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. It holds 253 stocks in its basket, with a large concentration on the top two firms. From a sector look, information technology takes the top spot at 43.9% share, while health care, consumer discretionary and communication services receive double-digit exposure each in the portfolio.
Schwab U.S. Large-Cap Growth ETF charges 4 bps in annual fees and sees an average volume of around 1.2 million shares a day.
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Top Growth ETFs to Tap Declining Inflation Trends
Inflation in the United States edged down for the second consecutive month in November, bolstering the bets that the Fed should keep interest rates steady at current levels during spring. This has powered a stock market rally as all three major indices rose to the highest level since early 2022. The Dow Jones, S&P 500 and Nasdaq closed at their highest levels since Jan 4, 2022, Jan 14, 2022 and Mar 29, 2022, respectively (read: ETFs to Play Dow Jones' Solid Catch-Up).
Investors seeking to capitalize on this trend could invest in growth ETFs. While there are many ETFs in the space targeting the growth segment, we have highlighted the five most popular options. These have a Zacks ETF Rank #2 (Buy), suggesting their continued outperformance. These include Invesco QQQ (QQQ - Free Report) , Vanguard Growth ETF (VUG - Free Report) , iShares Russell 1000 Growth ETF (IWF - Free Report) , iShares S&P 500 Growth ETF (IVW - Free Report) and Schwab U.S. Large-Cap Growth ETF (SCHG - Free Report) .
Behind the Inflation Numbers
The Consumer Price Index rose 3.1% year over year in November, down from the annual rise of 3.2% in October. The index inched up 0.1% from last month. Inflation has now fallen significantly from a 40-year high of 9.1% in June 2022.
Much of the relief came from the drop in energy prices. Overall, energy prices declined 5.4% from the year-ago month, with gasoline prices dropping 8.9%. However, higher shelter and food prices offset the decline in energy prices (read: Inverse Energy ETFs Rise Amid Steep Decline in Oil).
Shelter prices, which make up about one-third of the CPI weighting, increased 0.4% from the prior month and were up 6.5% year over year. Meanwhile, food prices climbed 2.9% year over year and 0.2% from the last month.
Prices in other areas — services such as restaurants, used cars and auto insurance — also continued to rise. Used vehicle prices rose 1.6% in November after declining for five straight months, while restaurant prices rose 0.4% from October for the third straight month, leaving them 5.3% more expensive than the year-ago month.
The so-called core inflation, which strips out volatile components such as food and energy prices, remained steady at a 4% annual increase, according to the latest data from the Bureau of Labor Statistics. It climbed 0.3% after a 0.2% rise in October.
The data has resulted in a shift in expectations regarding the Federal Reserve's interest rate policy. Previously, markets had been pricing in a rate cut as early as March 2023. However, following the release of the data, the likelihood of a March rate cut fell to 43.7% from about 50%, with a higher probability (around 78%) of a cut in May, per CME FedTool Watch.
Why Growth?
Growth investing focuses on capital appreciation rather than annual income or dividends. It is a stock-buying strategy that aims to profit from companies that grow at above-average rates compared to their industry or the market. This is a more active attempt versus the value to build up the portfolio and generate more return on capital investment.
Growth funds generally tend to outperform during an uptrend. However, these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility, especially compared to value stocks.
ETFs to Buy
Invesco QQQ (QQQ - Free Report)
Invesco QQQ provides exposure to the 101 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq 100 Index. Information technology accounts for 57% of the assets, while consumer discretionary makes up for 18.7% share.
Invesco QQQ is one of the largest and most popular ETFs in the large-cap space, with an AUM of $218.2 billion and an average daily volume of 47 million shares. Invesco QQQ charges investors 20 bps in annual fees.
Vanguard Growth ETF (VUG - Free Report)
Vanguard Growth ETF offers exposure to the growth segment of large-cap equities and follows the CRSP US Large Cap Growth Index. Vanguard Growth ETF holds 221 stocks in its basket, with a higher concentration on the top two firms. Technology dominates the fund’s portfolio at 53.1%, while consumer discretionary and industrials round off the next two sectors with a 21% and 8.8% share, respectively.
Vanguard Growth ETF has AUM of $100.8 billion and an average daily volume of 943,000 shares. It charges 4 bps in fees per year.
iShares Russell 1000 Growth ETF (IWF - Free Report)
iShares Russell 1000 Growth ETF provides exposure to large and mid-capitalization U.S. equities that exhibit growth characteristics by tracking the Russell 1000 Growth Index. iShares Russell 1000 Growth ETF holds 442 securities in its basket with a tilt toward the information technology sector, while consumer discretionary, communication and healthcare receive double-digit exposure each.
With AUM of $78.2 million, iShares Russell 1000 Growth ETF trades in heavy volume of around 1.3 million shares a day on average and charges 19 bps in annual fees.
iShares S&P 500 Growth ETF (IVW - Free Report)
iShares S&P 500 Growth ETF tracks the S&P 500 Growth Index and holds 239 stocks in its basket. iShares S&P 500 Growth ETF is heavily concentrated on the top firm, with double-digit exposure. The ETF is skewed toward information technology at 37.5%, while health care, and consumer discretionary round off the next two spots with a double-digit exposure each (read: What Lies Ahead of S&P 500 ETFs in 2024?).
iShares S&P 500 Growth ETF charges 18 bps in annual fees and has amassed $35.9 billion in its asset base. The fund trades in an average daily volume of 2 million shares.
Schwab U.S. Large-Cap Growth ETF (SCHG - Free Report)
With AUM of $21.8 billion, Schwab U.S. Large-Cap Growth ETF follows the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. It holds 253 stocks in its basket, with a large concentration on the top two firms. From a sector look, information technology takes the top spot at 43.9% share, while health care, consumer discretionary and communication services receive double-digit exposure each in the portfolio.
Schwab U.S. Large-Cap Growth ETF charges 4 bps in annual fees and sees an average volume of around 1.2 million shares a day.