Market Overview

Go With A Growth ETF In April

Go With A Growth ETF In April

As measured by the widely followed S&P 500 Growth Index, growth index enjoyed a solid first quarter. The S&P 500 Growth Index is up nearly 13.3 percent year to date, an advantage of 140 basis points over the S&P 500.

What Happened

Growth stocks were among the most egregious offenders during the fourth-quarter equity market slide, due in large part to the factor's often overweight positions in technology stocks. This year, the story is better for growth stocks and data suggest investors may want to consider an exchange traded fund, such as the SPDR S&P 500 Growth ETF (NYSE: SPYG), over an actively managed growth mutual fund.

“In the three-year period ended 2018, just 24% of actively managed large-cap growth mutual funds outperformed the S&P 500 Growth index, according to a recently released SPIVA U.S. Scorecard from S&P Dow Jones Indices,” Todd Rosenbluth, CFRA Research's director of ETF and mutual fund research, said in a Thursday note.

SPYG is CFRA's focus ETF for April.

Why It's Important

The $4.43 billion SPYG holds 295 stocks, indicating a fair amount of the S&P 500 resides in growth territory. Like many growth ETFs, SPYG features a hefty technology weight. That sector is 25.67 percent of the fund's weight while the health care and communication services sectors combine for almost 32 percent of SPYG's weight.

SPYG has another benefit: it's cheap. Cheap compared to plenty of other ETFs and really cheap compared to actively managed growth ETFs. The fund's expense ratio is 0.04 percent per year, or $4 on a $10,000 investment.

“On an equal-weighted basis, the benchmark’s three-year annualized 10.85% total return was ahead of the mutual fund average’s 9.13% gain,” said Rosenbluth. “The approximately 170 basis point differential partially stems from stock selections and from the relatively high fee charged by active funds. According to CFRA, the average mutual fund in this style charges a 1.05% expense ratio, in contrast to SPYG’s miniscule 0.04%.”

What's Next

While SPYG has looked relative to pricier actively managed rivals, the ability of the ETF to continue that out-performance relies on its underlying holdings. Those include Microsoft Corp. (NASDAQ: MSFT) and Inc. (NASDAQ: AMZN), two stocks that combine for 13 percent of SPYG's weight.

CFRA has an Overweight rating on SPYG, the highest rating the research firm assigns to ETFs.

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