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5 Growth ETFs to Tap on an Incredible S&P 500 Rally

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Despite inflation fears, the S&P 500 is reaching new highs on strong earnings. The benchmark notched its 66th all-time high of 2021 and is poised for the second-biggest number of annual records ever — only behind 1995.

While every corner of the market is enjoying a solid ascent, growth investing has taken charge in the past month. iShares S&P 500 Growth ETF (IVW - Free Report) , SPDR Portfolio S&P 500 Growth ETF (SPYG - Free Report) , iShares Core S&P U.S. Growth ETF (IUSG - Free Report) , Vanguard S&P 500 Growth ETF (VOOG - Free Report) and S&P 500 Pure Growth Invesco ETF (RPG - Free Report) have been showing strong momentum. These ETFs have been hitting new highs with the index skyrocketing and have a solid Zacks ETF Rank #2 (Buy), suggesting their outperformance to continue.

Why Growth?

Growth stocks refer to high-quality stocks that are likely to witness revenues and earnings increase at a faster rate than the industry average. These stocks harness their momentum in earnings to create a positive bias in the market, resulting in higher share prices. As such, growth funds 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 (read: Bet on Growth ETFs to Ride the US Economic Growth Optimism).

Solid Earnings Trend

The latest batch of earnings from technology companies and retailers has powered the bullish sentiments, outweighing the fears of higher prices. Graphics chipmaker Nvidia (NVDA - Free Report) reported solid results and offered an upbeat guidance for the fourth quarter of fiscal 2022. Macy's (M - Free Report) and Kohl's (KSS - Free Report) also came up with blowout results and stronger-than-expected guidance after upbeat reports from Walmart (WMT - Free Report) and Target (TGT - Free Report) earlier this week.

In fact, Macy's surged 21.1% — its highest one-day percentage gain in decades, following earnings while Kohl's jumped 10.6%.

A spate of solid earnings beat took the S&P 500 to above the 4,700 milestone for the first time ever. Q3 earnings from 467 S&P 500 members that have reported so far are up 42.1% from the same period last year on 17.7% lower revenues, with 79.7% beating EPS estimates and 74.5% beating revenue estimates. Earnings and revenue growth rates have fallen in the ongoing Q3 earnings season from the first-half’s breakneck speed but are above the historical averages.

Combining the actual results that have come up with estimates for the still-to-come companies, total Q3 earnings for the S&P 500 Index are expected to be up 40.1% from the same period last year on 17.2% higher revenues. Aggregate Q3 earnings for the S&P 500 Index are on track to reach a new all-time quarterly record, surpassing the record set in the preceding quarter.

ETFs to Buy

iShares S&P 500 Growth ETF

iShares S&P 500 Growth ETF tracks the S&P 500 Growth Index and holds 242 stocks in its basket. The fund is heavily concentrated on the top two firms with double-digit exposure each. Additionally, iShares S&P 500 Growth ETF is skewed toward information technology at 42.8%, while consumer discretionary, communication and health care round off the next three spots with double-digit exposure each.

iShares S&P 500 Growth ETF charges 18 bps in annual fees and has amassed $39.8 billion in its asset base. The fund trades in an average daily volume of 1.8 million shares and has gained 7.9% in a month.

SPDR Portfolio S&P 500 Growth ETF
 
SPDR Portfolio S&P 500 Growth ETF also follows the S&P 500 Growth Index, holding 242 stocks in its basket. SPYG has AUM of $15.4 billion, lower than IVW but is more liquid with an average daily volume of 2.3 million shares (read: ETF Strategies to Ride the Market Optimism in November).

SPDR Portfolio S&P 500 Growth ETF charges investors 4 bps in annual fees, much lower than the iShares product. The fund has gained 7.9% in a month.

iShares Core S&P U.S. Growth ETF

iShares Core S&P U.S. Growth ETF tracks the S&P 900 Growth Index, which measures the performance of the large and mid-capitalization growth sector of the U.S. equity market. IUSG is home to 472 stocks, with heavy concentration on the top two firms. Information technology again dominates the portfolio with 41.6% of assets.

iShares Core S&P U.S. Growth ETF has accumulated $13.6 billion in its asset base and charges 4 bps in annual fees. IUSG trades in an average daily volume of 350,000 shares and has gained 7.9% in the same timeframe.

Vanguard S&P 500 Growth ETF

Like SPYG and IVW, Vanguard S&P 500 Growth ETF tracks the S&P 500 Growth Index but holds lower basket of 242 securities. VOOG charges higher than SPYG with an expense ratio of 0.10%, which is 8 bps lower than IVW.

Vanguard S&P 500 Growth ETF is relatively less popular and less liquid, with AUM of $7.5 billion and an average daily volume of 106,000 shares. The ETF has been up 8% over the past month (read: Here's Why Growth ETFs Are Attractive Bets Right Now).

Invesco S&P 500 Pure Growth ETF

Invesco S&P 500 Pure Growth ETF is slightly different from its cousins as it offers exposure to the companies that exhibit strong growth characteristics in the S&P 500 Index. RPG tracks the S&P 500 Pure Growth Index and holds only 75 stocks in its basket, with none making up for more than 3.1% of assets. Here again, information technology dominates the portfolio with 41.4% of its assets.

Invesco S&P 500 Pure Growth ETF has amassed $3.7 billion in its asset base and trades in a good average volume of around 109,000 shares a day. The product charges 35 bps in fees a year from investors and has outperformed over the past month, rising 11.6%.