Three Opportunities to Benefit From Battered Growth Stocks

Looming uncertainty has led to recent wild bouts of volatility.  Especially because we don’t have answers about the debt ceiling, how impactful supply chain disruptions will be on company earnings, or about the global oil supply’s impact on the economic recovery and inflation.  We seem to be on the cusp where many factors could impact economic growth.  To that extent, it’s wise to have exposure to companies that are going to be able to grow, even if the economy doesn’t recover as quickly as we think it might. 

Growth stocks have been especially damaged in the most recent market slump, thanks to fluctuating Treasury yield rates.  The tech-heavy Nasdaq has been the worst performer of the major indices, and some of the most promising growth stocks have fallen by 20% or more from their recent highs.  However, pullbacks like this create good opportunities.  

Along with the potential for supercharged returns from growth stocks comes potential for volatility.  Investing in a fund fixed on growth can help diversify your portfolio while reducing your risk.  

Choosing the right growth ETF for you can help maximize your earnings while tapping into a wide array of companies from industries with high growth potential like information technology and financial services.  

In this article we’ll compare a few options of top rated growth ETFs for our readers who want to reap the benefits of stocks with high growth potential while cutting back on exposure to the risk involved with individual stocks. 

 The Invesco QQQ Trust (QQQ), is one of the most widely traded ETFs worldwide, as is evident from its high average daily trading volume.  QQQ is often used as a trading vehicle by short-term players, but is also useful as a buy-and-hold investment for those looking to maintain a hand in the historically volatile tech sector.  

Often referred to as “the triple Q’s,” the fund offers exposure to non-financial stocks listed on the NASDAQ.  QQQ has a relatively narrow portfolio (only 100 names), and is much more concentrated in its top names, which makes it more volatile than many other ETF options with more diverse exposure.  The fund and its underlying index, the NASDAQ 100, are rebalanced quarterly and reconstituted annually.   

QQQ holds some of the world’s biggest innovators, including Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN).  The fund is well-favored by the Wall Street pros for its strong performance, tax efficiency and low cost.  It should be noted that the expense ratio for QQQ is one of the lowest in the industry.  The fund has lost 6.25% over the past month.  

The Invesco QQQ Trust (QQQ)

• Market Cap  $139.74B
• Price / Earnings Ratio   35.74
• Price / Book Ratio  9.26
• YTD Daily Total Return  17.81%
• YTD Return  12.79%
• Yield  0.49%
• Expense Ratio  0.2%
• Net Assets   174.51B
• Number of Holdings  41
• Top Holdings      Apple (AAPL), Microsoft (MSFT), Amazon (AMZN)

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The Schwab US Large-Cap Growth ETF (SCHG) is another low cost option for those looking to diversify into growth through a basket of large-cap equities. The fund tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market index.  

Unlike QQQ, SCHG offers exposure to companies from many growth oriented sectors.  There is, of course, a sector bias toward tech, which makes up about 39% of the portfolio spread among consumer discretionary, communication services, health care and other sectors.  Of the remaining 61% industrials, health care, energy, and consumer goods receive equal weighting.  

The fund selects its growth stocks from 750 of the largest companies (by market cap) based on fundamental factors including projected earnings growth as well as trailing revenue and earnings growth.  Since it draws from a larger selection universe, SCHG has a significant mid-cap tilt.  The index rebalances quarterly and undergoes an annual reconstitution in September.  The fund is down 5.5% over the past month.

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The Schwab US Large-Cap Growth ETF (SCHG)

• Market Cap  $41.27B
• Price / Earnings Ratio   44.34
• Price / Book Ratio  10.36
• YTD Daily Total Return  18.76%
• YTD Return  14.22%
• Yield  0.43%
• Expense Ratio  0.04%
• Net Assets   15.16B
• Number of Holdings  41
• Top Holdings      Apple (AAPL), Microsoft (MSFT), Amazon (AMZN)

The ARK Innovation ETF (ARKK) is an actively managed fund that focuses on “disruptive innovation” companies, defined by Wood as a “technologically enabled new product or service that has the potential to change the way the world works.”  

ARKK’s portfolio focuses on companies involved in genomics, transportation, automation, energy, artificial intelligence, shared technology, infrastructure and services, and fintech.  ARK’s proprietary macroeconomic and fundamental research aimed at assessing company potential, drives security selection and weighting with ESG considerations as a second assessment.

 “For investors with a very long-term view, you can gain exposure to her main growth drivers for future innovation, namely in artificial intelligence, autonomous vehicles, fintech, DNA sequencing, robotics and 3D printing,” says Bryan Lee, chief investment officer at Blue Zone Wealth Advisors in Los Angeles. Some of the fund’s top holdings are Tesla (TSLA), Square (SQ) and Roku (ROKU). 

ARK’s products are geared toward investors who have the fortitude and faith to ride out short-term volatility in favor of long-term gains.  ARK’s management fee might seem pricey in the world of ETFs, but it’s cheap for active management, especially when the manager delivers significant alpha.  The fund is down 11.75% over the past month.  

The ARK Innovation ETF (ARKK)

• Weighted Average Market Cap  $41.27B
• Price / Earnings Ratio   85.13
• Price / Book Ratio  7.17
• YTD Daily Total Return  -3.1%
• YTD Return  -13.1%
• Yield  0.0%
• Expense Ratio  0.75%
• Net Assets   25.52BB
• Number of Holdings  41
• Top Holdings      Tesla (TSLA), Teladoc (TDOC), Roku (ROKU)

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