Best growth ETF for the first quarter of 2022

Growth exchange-traded funds (ETFs) are one of the two major types of ETFs, and the other is value ETFs. Growth ETFs aim to invest in a basket of stocks whose underlying companies have the potential for rapid growth, rather than stocks whose prices are relatively undervalued. Growth companies in these funds include Microsoft Corporation (MSFT), DocuSign Inc. (DOCU), and Micron Technology Corporation (MU).

These ETFs can provide above-average returns, but they also take more risks because rapid growth is often accompanied by higher volatility, especially during periods of economic weakness. For investors looking for regular investment income, these ETFs may not be the best tools. This is because many growth companies reinvest their earnings in future growth instead of paying dividends to shareholders.

Key points

  • Growth stocks have performed slightly better than the broader market in the past year.
  • The best exchange-traded funds (ETFs) that track total returns in a year are PSI, FYC, and PTF.
  • The largest holdings of these ETFs are NVIDIA Corp., Dillard’s Inc. Class A shares and Intuit Inc. respectively.

There are 77 smart beta growth ETFs traded in the United States, excluding inverse and leveraged ETFs, and funds with assets under management (AUM) of less than US$50 million. Smart Beta is an investment strategy that can benefit from passive and active investments. Smart Beta funds seek to passively track the index while using alternative weighting schemes based on the typical characteristics of liquidity, momentum, value, growth, or other factor investments.

Growth stocks measured by the S&P 500 Growth Index have performed slightly better than the broader market in the past year. As of November 11, 2021, the one-year total return of the index was 34.8%, while the one-year total return of the S&P 500 was 32.1%. Based on the performance of the past year, the best performing growth ETF is Invesco Dynamics Semiconductor ETF (PSI).

We have examined the three best growth ETFs below. All figures below are as of November 11, 2021.

  • Performance over one year: 61.9%
  • Expense rate: 0.56%
  • Annual dividend yield: 0.13%
  • Three-month average daily volume: 43,526
  • Assets under management: US$859 million
  • Date of establishment: June 23, 2005
  • Issuer: Invesco

PSI seeks to track the Dynamic Semiconductor Intellidex Index, which is made up of 30 US semiconductor companies that have been screened using various investment factors, including price and earnings momentum, quality, management behavior, and value. The ETF invests at least 90% of its assets in the stocks that make up the index. It provides risk exposure to companies that are primarily engaged in semiconductor manufacturing. Multi-share funds tend to be small and medium-sized companies. Its top three holding companies are NVIDIA Corp. (NVDA), KLA Corp. (KLAC) and Applied Materials Inc. (AMAT), all of which are manufacturers of semiconductors and related equipment.

  • Performance over one year: 52.0%
  • Expense rate: 0.71%
  • Annual dividend yield: 0.11%
  • Three-month average daily volume: 34,526
  • Assets under management: $381.7 million
  • Date of establishment: April 19, 2011
  • Issuer: First Trust

FYC aims to track the Nasdaq AlphaDEX Small-Cap Stock Growth Index, which consists of stocks that meet certain investment criteria in the Nasdaq US 700 Small-Cap Growth Index, including price momentum, sales price ratio, and sales growth. ETFs provide exposure to small-cap stocks with high growth potential. The information technology sector received the largest distribution, followed by healthcare and non-essential consumer goods. Its top three holdings are the Class A shares of department store chain Dillard’s Inc. (DDS); LendingClub Corp. (LC), a peer-to-peer lending company; and Calix Inc. (CALX), a cloud, software, and service provider.

  • Performance over one year: 49.4%
  • Expense rate: 0.60%
  • Annual dividend yield: Not applicable
  • Three-month average daily volume: 17,511
  • Assets under management: US$401.8 million
  • Date of Establishment: October 12, 2006
  • Issuer: Invesco

PTF tracks the Dorsey Wright Technology Leaders Index, which identifies stocks that are performing strong and consists of at least 30 securities from the Nasdaq US benchmark index. The index uses relative strength to measure the momentum of stocks. ETFs usually invest at least 90% of their assets in the securities that make up the index. The software industry received the largest allocation in the fund, followed by semiconductors and semiconductor equipment and IT service industries.

PTF invests in companies within the entire market capitalization range and prefers companies with strong growth potential rather than those with strong value characteristics. Its top three holding companies are Intuit Inc. (INTU), a developer of business and financial management software solutions; Class A shares of Cloudflare Inc. (NET), a global cloud service provider; and Advanced Micro Devices Inc. (AMD), a semiconductor manufacturer ).

The comments, opinions and analysis expressed here are for reference only and should not be regarded as personal investment advice or advice on investing in any securities or adopting any investment strategy. Although we believe that the information provided here is reliable, we do not guarantee its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Due to the rapidly changing market and economic conditions, all comments, opinions and analyses contained in our content are presented on the date of publication and may change without notice. This material is not intended to provide a complete analysis of every important fact about any country, region, market, industry, investment or strategy.

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