Growth exchange-traded funds appeal to investors who want exposure to companies that are projected to grow faster than the overall market.
Historically, growth ETFs outperform during favorable economic conditions with low interest rates. An example of this was during the COVID-19 pandemic when U.S. growth stocks strongly outperformed the market, probably due partly to loose monetary policy.
To find the best growth ETFs listed in the U.S. for 2024, we screened candidates based on several factors: management style, expense ratios, growth metrics, historical returns, Morningstar ratings and total assets.
Best Growth ETFs
- Invesco QQQ Trust (QQQ).
- Vanguard Growth ETF (VUG).
- iShares Russell 1000 Growth ETF (IWF).
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- Schwab U.S. Large-Cap Growth ETF (SCHG).
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Invesco QQQ Trust (QQQ)
Expense ratio
0.2%
Total assets
$258.3 billion
What you should know
Investors looking to track the 100 largest nonfinancial companies listed on the Nasdaq can consider QQQ, which is one of the largest and most traded ETFs on the market. Around 50% of this ETF consists of large-cap U.S. tech stocks, with notable companies such as Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) among its top holdings. The ETF tends to be very top-heavy, with Apple and Microsoft accounting for around 20% of its portfolio. A notable feature of QQQ is a well-developed options chain and a lower-priced variant, Invesco Nasdaq 100 ETF (QQQM), with a 0.15% expense ratio.
Pros and cons
Pros
- Long track record of strong performance.
- Excellent AUM and trading volume.
- Well-developed options chain for advanced investors.
Cons
- Excludes companies not held on the Nasdaq composite.
- Excludes financial sector companies.
- A high concentration in the tech sector.
More details
- Category: U.S. large-cap growth.
- Morningstar rating: 5 stars.
- 10-year annualized return as of March 1: 17.66%.
Vanguard Growth ETF (VUG)
Expense ratio
0.04%
Total assets
$117.4 billion
What you should know
Investors looking for a less constrained approach to growth investing can opt for VUG, which tracks the CRSP U.S. Large Cap Growth Index. VUG passively holds all 200-plus stocks in its index and possesses some great growth metrics, with an earnings growth rate of 20.1% and a return on equity of 33.6%, as of December 31. Unlike QQQ, VUG holds non-Nasdaq stocks and financial sector stocks. That being said, over 40% of the ETF is still held in technology stocks, with Apple and Microsoft again dominating its top holdings. Like many Vanguard ETFs, VUG is extremely cost-effective, charging a low expense ratio of 0.04%.
Pros and cons
Pros
- Low fund turnover rate.
- Low expense ratio.
- Good growth metrics.
Cons
- High concentration in the technology sector.
- Top-heavy in terms of portfolio weighting.
- Low exposure to mid-caps and no exposure to small caps.
More details
- Category: U.S. large-cap growth.
- Morningstar rating: 4 stars.
- 10-year annualized return as of March 1: 13.97%.
Schwab U.S. Large-Cap Growth ETF (SCHG)
Expense ratio
0.04%
Total assets
$26.4 billion
What you should know
SCHG derives its holdings from the broader Dow Jones U.S. Large-Cap Growth Total Stock Market Index, which focuses on growth measures, including trailing revenue growth, trailing earnings growth and projected earnings growth. SCHG’s holdings comprise more than 240 companies, with the majority from the technology sector. The ETF also has decent exposure to the health care and consumer discretionary sectors.
Pros and cons
Pros
- Low fund turnover rate.
- Low expense ratio.
- Good growth metrics.
Cons
- Concentration in the technology sector.
- Top-heavy in terms of portfolio weighting.
- Low exposure to mid-caps and no exposure to small caps.
More details
- Category: U.S. large-cap growth.
- Morningstar rating: 5 stars.
- 10-year annualized return as of March 1: 14.88%.
SPDR Portfolio S&P 500 Growth ETF (SPYG)
Expense ratio
0.04%
Total assets
$24.1 billion
What you should know
SPYG is the growth-focused ETF from SPDR’s portfolio fund lineup, intended as low-cost core portfolio building blocks. This ETF tracks the S&P 500 Growth Index by selecting companies within the S&P 500, with the strongest growth characteristics. SPYG’s index defines this based on sales growth, earnings change to price ratios and momentum. The ETF has more than 200 holdings weighted by market capitalization. As with IVW, there is a lower weighting toward technology sector stocks and a decent weighting toward health care stocks.
Pros and cons
Pros
- Low expense ratio.
- Less concentration in the technology sector.
- Less top-heavy in terms of portfolio weighting.
Cons
- Low exposure to mid-caps and no exposure to small caps.
- Virtually no exposure to real estate or utility sectors.
More details
- Category: U.S. large-cap growth.
- Morningstar rating: 4 stars.
- 10-year annualized return as of March 1: 13.24%.
Compare the best growth ETFs
| FUND(TICKER) | EXPENSE RATIO | 10-YEAR RETURN AS OF MARCH 1 |
|---|---|---|
Invesco QQQ Trust (QQQ) | 0.20% | 17.66% |
Vanguard Growth ETF (VUG) | 0.04% | 13.97% |
iShares Russell 1000 Growth ETF (IWF) | 0.19% | 14.66% |
iShares S&P 500 Growth ETF (IVW) | 0.18% | 13.16% |
Schwab U.S. Large-Cap Growth ETF (SCHG) | 0.04% | 14.88% |
SPDR Portfolio S&P 500 Growth ETF (SPYG) | 0.04% | 13.24% |
iShares Core S&P U.S. Growth ETF (IUSG) | 0.04% | 12.83% |
Methodology
Our curated list of top growth ETFs was created by screening all available U.S.-listed growth ETFs and evaluating them on the following must-have metrics:
- Morningstar rating: All ETFs selected have at least a 4-star rating from Morningstar. This is a quantitative, rearward-looking measure of an ETF’s historical performance.
- Assets under management: All selected ETFs have at least $1 billion in assets under management. A higher AUM is a sign of greater investor confidence and interest in an ETF.
- Expense ratios: To be considered for this list, a growth ETF must have a net expense ratio of less than 0.4%. All else being equal, a lower expense ratio means higher net returns for ETF investors.
- Growth metrics: All the ETFs were screened for a higher average five-year earnings growth rate and return on equity compared to the benchmark Vanguard S&P 500 ETF (VOO).
- Management style: All ETFs on this list are passively managed by tracking a benchmark growth stock index. None of the ETFs engage in active stock-picking or use derivatives to enhance income or hedge risk.
- 10-year annualized return: All the ETFs on this list have a track record of strong historical performance. While past performance should not be used to predict future performance, it can be used to identify growth ETFs that performed well during the favorable economic conditions of the last decade.
These considerations produced a list of growth ETFs with favorable characteristics, including high historical returns during bull markets, popularity with investors, a verifiable track record of performance, management by reputable firms with demonstrated expertise, a history of above-average growth characteristics, relatively low expense ratios and passive management by tracking an index.
Please note that an experienced ETF analyst selected the ETFs above, but they may not be right for your portfolio. Before you decide to purchase any of these ETFs, do plenty of research to ensure they are aligned with your financial goals and risk tolerance.
Why other growth ETFs didn’t make the cut
Our selection excluded actively managed growth ETFs due to their higher expense ratios. ETF expense ratios are a controllable cost that can make a big difference in long-term returns. Sticking to low-cost indexed growth ETFs is ideal for most investors given that most actively managed funds tend to underperform their passive counterparts.
Consider the S&P Indices Versus Active (SPIVA) Scorecard from S&P Dow Jones Indices, which measures the performance of actively managed funds worldwide against their index benchmarks. The research found that over 15 years, 93.4% of actively managed funds underperformed the S&P 500, as of Dec. 31, 2022.
The list also excludes international growth ETFs. While emerging markets like China can offer growth stocks with enticing metrics, most of these growth ETFs tend to charge much higher expense ratios and have higher volatility. Most international growth ETFs we assessed also did not earn a high enough Morningstar rating.
Final verdict
When it comes to tax-efficiency and overall total returns, growth ETFs can be high-risk, high-reward picks.
The selected ETFs are best suited for bullish investors who are in them for the long term and can tolerate high volatility and possibly extended bouts of underperformance. Because most growth ETFs pay low distributions, they make great holdings in taxable accounts and can complement any dividend or value ETFs held in a tax-sheltered account.
Our recommendation for the best overall growth ETF is IUSG. This ETF offers a combination of a low expense ratio, low turnover, strong growth metrics and excellent historical performance. It holds some of the most prominent growth stocks listed on U.S. markets and does not exclude too many growth stocks, as its benchmark index takes a broad approach. It also provides some exposure to mid-cap growth stocks, is less heavily concentrated in the technology sector and is lower weighted toward top holdings compared with other ETFs.
That being said, if you plan on eventually trading options or getting more active with your investments, QQQ is a great alternative. Because this growth ETF has a much higher trading volume and a well-developed options chain, advanced investors looking for more than a buy-and-hold strategy will likely find it useful.
Choosing the best growth ETF
Investors assessing growth ETFs should look for a combination of strong metrics, low fees and high diversification. To identify these traits, check a growth ETF’s average earnings growth rate and return on equity metrics, expense ratio and underlying holdings.
For metrics, you’ll want to compare it with a benchmark index ETF that tracks blended equities and see if it offers a higher return. You’ll want to compare similar funds and prioritize the cheaper ones for expense ratios. For underlying holdings, seeing a mix of stocks from as many market sectors as possible is desirable, watching out for concentrations in a specific one or a particular level of market capitalization.
What is growth investing?
Growth investing is an active attempt to increase your capital. It is a strategy in which you invest in companies whose profits, revenues or cash flows are increasing at an above-average rate.
These are companies that are typically in the growth phase of their lifecycle, expanding rapidly compared to others in the market or their respective sectors.
Growth investing can be contrasted with value investing, a strategy in which you attempt to buy assets for less than they are worth. While value investors hunt for bargains or “undervalued” stocks based on current fundamentals, growth investors want to capitalize on future potential. They are willing to pay a premium for stocks with promising prospects for future growth.
When growth investors evaluate potential investments, they consider several metrics. A primary one is consistently increasing growth rates for earnings over several years. Ideally, this growth rate should be higher than the average rate for the broader market or the company’s peers within the same sector.
Another metric watched closely by growth investors is revenue growth. A consistent increase in sales can indicate various positive factors, such as a product’s rising popularity, effective marketing campaigns or a company capturing a larger market share.
Growth investors also tend to like companies with a high return on equity (ROE). A robust ROE can suggest that a company uses the money being reinvested in it, whether from shareholders or retained earnings, to generate profits.
Finally, growth investors will often look at forward-looking data, like projected or forecasted earnings, to gauge a company’s potential for future growth. This can be combined with qualitative information like a company’s market share, industry growth prospects, and innovative products, services, and patents.
Frequently asked questions (FAQs)
Growth stocks are the publicly traded shares of individual companies with growth characteristics. On the other hand, a growth ETF is an investment vehicle that holds a basket of many different growth stocks.
Like growth stocks, shares of growth ETFs trade on exchanges throughout the day and can be purchased at most brokerages. By purchasing a share of a growth ETF, investors receive proportional exposure to its underlying stocks.
Growth and value stocks represent two primary investment strategies, each with distinct characteristics and focus. While growth investing is forward-looking, focusing on future potential, value investing seeks bargains based on current fundamentals.
Growth stocks belong to companies expected to grow their earnings at an above-average rate compared to other stocks in the market. These companies are often in an expansion phase, and investors are usually willing to pay a premium for them, anticipating future profits. They might only sometimes pay dividends as they typically reinvest their profits into growing the business.
On the other hand, value stocks are shares of companies that are considered undervalued compared to their intrinsic value. Value investors believe the market has overlooked these companies, which may be stable and mature and often offer dividends. The idea is that value stocks provide a margin of safety and will eventually be recognized by the market, leading to potential gains.
Investing in equities is considered higher risk than assets like bonds or cash. Within the equity universe, growth stocks tend to be the riskiest in terms of their historical volatility. If you hold growth ETFs, you must be able to cope with potentially high fluctuations and sharp losses during unfavorable economic conditions. Many growth ETFs tend to overweight certain sectors like technology, which adds a higher degree of sector concentration risk.
