Growth ETFs Outperform Amid Historic Market Comeback

Wall Street has staged a nice comeback in recent weeks from a low in early April triggered by Trump’s trade policies. Trade deal talks and solid tech earnings buoyed market sentiments. Cooling inflation added to further strength. The S&P 500 erased its 15% year-to-date loss in less than six weeks, marking the fastest recovery since 1982, according to Bespoke Invest. 

While the rally has been broad-based, growth ETFs are outperforming. The ultra-popular iShares Russell 1000 Growth ETF IWF has gained nearly 12% over the past month amid the historic recovery, easily outperforming its value counterpart, iShares Russell 1000 Value ETF IWD, which delivered a gain of 7.3%. 

Investors seeking to tap the bullish trend should consider growth ETFs. We have highlighted five ETFs that have outperformed IWF over the past month. These are Invesco S&P 500 Pure Growth ETF RPG, Pacer US Large Cap Cash Cows Growth Leaders ETF COWG, Franklin Focused Growth ETF FFOG, Logan Capital Broad Innovative Growth ETF LCLG and First Trust Growth Strength ETF FTGS.

The growth funds generally tend to outperform during an uptrend. 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 value investing to build up a portfolio and generate more return on capital investment. 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.

Solid Macro Trends

The U.S.-China trade deal talks sparked a frenzy in the market. The United States has agreed to temporarily slash tariffs on Chinese goods from 145% to 30%, while China will lower its retaliatory duties on U.S. goods from 125% to 10%. The temporary reduction in rates will run for 90 days (read: 5 Leveraged ETFs Soaring on U.S.-China Trade Truce).

The latest inflation data also supported the bullish sentiment. U.S. inflation in April cooled to the lowest level since February 2021. The Consumer Price Index, which tracks a variety of costs throughout the economy, rose 2.3% year over year in April, down slightly from 2.4% in March. The softer-than-expected data bolstered the case for the easing by the Federal Reserve.

Wall Street strategists are turning increasingly bullish once again on the S&P 500 outlook for the year, fueled by a 90-day truce in U.S.-China tariff tensions that has sparked a market rally. Goldman Sachs raised its year-end target for the S&P 500 to 6,100 from 5,900. Yardeni Research also lifted its forecast to 6,500 from 6,000, implying an additional 11% gain from current levels. Both firms cited easing concerns over a major economic slowdown as a key driver behind their optimism.

ETFs in Focus

Invesco S&P 500 Pure Growth ETF (RPG) – Up 16.2%

Invesco S&P 500 Pure Growth ETF offers exposure to the companies that exhibit strong growth characteristics in the S&P 500 Index. It tracks the S&P 500 Pure Growth Index and holds 92 stocks in its basket. Invesco S&P 500 Pure Growth ETF has amassed $1.5 billion in its asset base and charges 35 bps in fees a year from investors. It has a Zacks ETF Rank #3 (Hold).

Pacer US Large Cap Cash Cows Growth Leaders ETF (COWG) – Up 16.4%

Pacer US Large Cap Cash Cows Growth Leaders ETF is a strategy-driven ETF that aims to identify top growth companies in the Russell 1000 by screening for above-average free cash flow margins. It holds 102 stocks in its basket with key holdings in information technology,  healthcare and consumer discretionary. Pacer US Large Cap Cash Cows Growth Leaders ETF has $1.5 million in AUM and charges 49 bps in annual fees (read: 5 Sector ETFs to Make the Most of the U.S.-China Trade Deal).

Franklin Focused Growth ETF (FFOG) – Up 15.4%

Franklin Focused Growth ETF is an actively managed ETF seeking capital appreciation by investing predominantly in equity securities of companies that the investment manager believes offer compelling growth opportunities. It holds 34 securities in its basket, with key holdings in  software & services, semiconductors & semiconductor equipment, media & entertainment and consumer discretionary distribution & retail. Franklin Focused Growth ETF has gathered $118.3 million in its asset base and charges 55 bps in annual fees.

Logan Capital Broad Innovative Growth ETF (LCLG) – Up 15.4%

Logan Capital Broad Innovative Growth ETF follows the Logan Capital’s Large Cap Growth strategy, which is a true large-growth strategy, slightly on the aggressive side. It offers exposure to 56 companies that benefit from an economic tailwind, deliver increased earnings tied to pricing power, and have a technical profile that confirms strong business fundamentals. Logan Capital Broad Innovative Growth ETF has gathered $72 million and charges 96 bps in annual fees. 

First Trust Growth Strength ETF (FTGS) – Up 14.5%

First Trust Growth Strength ETF tracks the Growth Strength Index and holds 50 stocks in its basket. Technology is the top sector at 32.2% while industrials, consumer discretionary, and financials round off the top three with double-digit exposure each. First Trust Growth Strength ETF has AUM of $1 billion and charges 60 bps in annual fees.

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