4 Picks for Large-Cap Growth
Sep 24th 2013 10:36AM
Updated Sep 24th 2013 10:38AM
Large-cap, growth-focused exchange-traded funds combine earnings potential with the security of a cushy market cap. The majority of their assets are large-cap growth companies, but large-cap value plays and midcaps might also appear in the mix. And that's good from a diversification standpoint.
The differing focuses of available ETFs make it easy to find something to fit your needs. Do you need a core to build around? Or satellite ETFs to support a nearly complete portfolio?
Here are four large-cap growth ETFs to consider.
Strong core ETFs typically track broad-based indexes such as the Dow Jones Industrial Average, the S&P 500, or the Russell 3000 Index. An ideal core ETF will have a near balance of at least three sectors so that it's not overly exposed to any particular industry.
The iShares Russell 1000 Growth ETF tracks a subsection of the Russell 3000 that's weighted according to market cap. This ETF has a whopping 611 holdings and $20.7 billion in assets. Holding sectors include consumer discretionary and technology at nearly equal weights -- with health care and consumer staples trailing shortly behind.
So the iShares Russell 1000 Growth ETF is a viable core strategy for value investors looking for a cheaper price than the iShares Core S&P 500 ETF. The expense ratio is low at 0.2%, and there's a 1.5% dividend yield. The ETF is trading up 17.5% year to date, and its three- and five-year average net-asset-value returns are 18.4% and 7.3%, respectively.
But the iShares Russell Top 200 Growth ETF is a better choice for those who want less volatility and are wiling to sacrifice a bit of growth. This ETF has a similar sector spread to its larger brother but has about $400 million in assets across 123 holdings. Its narrowed focus on the top 200 companies by market cap eliminates some of the smaller, more volatile holdings.
The Top 200 Growth ETF was founded in late 2009 and has a 0.2% expense ratio and a 1.83% dividend yield. This ETF is trading up nearly 16% for 2013 and has a three-year NAV return of 18.18%.
Satellite ETFs offer ways to dive deeper into a specific area or two -- such as the popular but volatile technology and biotechnology sectors.
Want a large-cap ETF with a heavy tech slant? Check out PowerShares QQQ , which has almost 58% of its holdings in information technology companies.
PowerShares QQQ offers an advantage over many tech-specific sector ETFs in that it has a much higher liquidity, which makes for easier buying and selling. And the 20% consumer discretionary allocation means there's some risk mitigation happening by way of diversification.
The ETF tracks the NASDAQ-100 Index with $37 billion in assets spread across 100 holdings. PowerShares QQQ ETF has a low expense ratio of 0.2% and a 1.2% dividend yield, and it's trading up 20.5% year to date. The three- and five-year average NAV returns are 19.8% and 10.4%, respectively.
Want even less tech in your basket? Guggenheim S&P 500 Pure Growth ETF has 50% of its holdings in consumer discretionary and health care.
This ETF provides an entry for investors who only want to dip their toes in the health care waters. Holdings include companies that also appear in many health sector ETFs, such as Gilead and Celgene. These quickly rising biotechs have volatility built in, but here they are balanced by consumer discretionary companies that have a steadier course.
Pure Growth tracks the index of the same name and spreads $625 million in assets across 112 holdings with nearly equal weight. The ETF's expense ratio of 0.3% comes in a bit higher than the others, but that's still low in the general scheme of things. A small dividend yield of 0.7% doesn't make this the best ETF for income investors.
Pure Growth is up about 25% year to date and has an average annual NAV return of 20.6% for three years and 14.2% for five years. That's an impressive return rate for a large-cap ETF.
Foolish final thoughts
Consider the overall health and balance of your portfolio when searching for ETFs. The iShares Russell 1000 may appeal to value investors seeking a full bundle of growth stocks at a cheap price, while the Russell Top 200 ETF offers the cream from the top with slightly lower growth rates and lower volatility.
Investors wanting some sector exposure without the heavy risk of sector ETFs should consider the tech-based Powershares QQQ or the biotech-friendly Guggenheim Pure Growth.
The article 4 Picks for Large-Cap Growth originally appeared on Fool.com.Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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