As the second quarter kicks in, the broad U.S. stocks market is yet again at its all-time high amid emerging market turmoil and Fed’s tightening stimulus. Though mid caps are leading the way higher, large caps appear to perform much better than other securities as we move ahead in the year (read: Mid Cap ETFs Leading the Broad Rally).
This is because concerns over rising interest rates sooner than expected and the Russia-Ukraine standoff will continue to weigh on domestic economic growth. As such, investors should focus on large cap stocks, which tend to be the most stable in an adverse economic scenario and offer capital appreciation in a booming market.
Strengthening job market, rebounding auto sales, recovering housing market, rising GDP, improving manufacturing growth and increasing consumer spending are expected to propel stock markets higher. In order to tap this growth, honing in on growth securities in this capitalization level allows investors to earn more returns.
Growth investing is basically a momentum play, which makes it a great strategy in a trending market (i.e. a market characterized by a prolonged uptrend). Stocks in the growth ETF portfolio harness their momentum in earnings to create a positive bias in the market, resulting in rocketing share prices. As such, pure growth funds tend to outperform during an upward trend.
However, it is worth noting that these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibits a higher degree of volatility especially compared to value stocks (read: Play the Market Rally with These ETFs).
Given the pros and cons, investors may want to consider cycling into large cap growth space in order to obtain a nice momentum play this year. While looking at individual companies is certainly an option, a focus on top ranked large cap growth ETFs could be a less risky way to tap into the same broad trends.
Top Ranked Large Cap Growth ETF in Focus
We have found a number of ETFs that have the top Zacks ETF Rank of 1 or ‘Strong Buy’ rating in the large cap growth space and are thus expected to outperform in the months to come (read: all the Top Ranked ETFs).
While all these top ranked ETFs are likely to outperform, the following two funds could be good choices to tap into the space. This duo has enjoyed a strong momentum in the year-to-date period, and has potentially superior weighting methodologies which could allow it to continue leading the large cap growth space in the months ahead.
Guggenheim S&P 500 Pure Growth ETF ((RPG - ETF report) )
This ETF tracks the S&P 500 Pure Growth Index, holding 108 securities in its basket. The fund is widely diversified across various securities as none of these holds more than 2.14% of total assets in the basket. However, the product has a slight tilt toward the consumer discretionary sector accounting for over 28% share while information technology, financials and healthcare round off the next three spots.
The fund has amassed $1.3 billion in its asset base while trades in good volume of nearly 169,000 shares per day. The ETF charges 0.35% in expense ratio and returned over 6% so far this year.
Schwab U.S. Large-Cap Growth ETF ((SCHG - ETF report) )
This ETF follows the Dow Jones U.S. Large-Cap Growth Total Stock Market Index and holds 400 stocks in its basket. The product is rich in AUM of 1.2 billion and average daily volume of over 153,000 shares. SCHG is the low-cost choice in the space, charging just 0.07% in fees and expenses (read: 3 Dirt Cheap Top Ranked ETFs to Buy Now).
The fund has a large allocation of 5.3% in the top firm – Apple (AAPL - Analyst Report) – while other firms do not hold more than 3.5% of total assets. The product is also heavy on information technology at 27.8% while healthcare, consumer discretionary and industrials also get double-digit exposure in the portfolio. The ETF added about 2.6% in the year-to-date time frame.
These two growth products are clearly outpacing the large cap fund (SPY - ETF report) and this trend is likely to continue in the coming months as well. This is especially true, as these would generate above higher returns compared to other products when the market is booming (see: all Large Cap ETFs here).
Given this, investors shouldn’t forget the large cap growth space and should take a closer look at a few of the top ranked ETFs in this sector for excellent exposure and some more outperformance in the months ahead.
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