In this article, we discuss the 10 best large-cap growth ETFs. If you want to skip our discussion on the currentmacro-environment, you can go directly to the 5 Best Large-Cap Growth ETFs.
Few combinations in the investment world are as appealing as the stability offered by large-cap companies with strong operational efficiency combined with growth attributes such as high revenue, solid valuations, and high projected growth rates. This is where the best large-cap growth ETFs come into play as they group together corporations that have a market capitalization of generally at least $10 billion with strong growth potential. For those investors who can tolerate short-term market uncertainty, have a long-term investment horizon, and adopt a buy-and-hold approach, large-cap growth ETFs are often a more suitable choice compared to small-cap growth ETFs. These growth-focused ETFs frequently surpass the performance of the broader market, as evidenced by the fact that all the 10 best large-cap growth ETFs on our list below have outperformed the Dow Jones Industrial Average (DJI) and the S&P 500 Index based on the five-year price performance. During this period, the Dow Jones Industrial Average (DJI) and the S&P 500 Index have recorded a gain of 33.5% and 55.1%, respectively. Furthermore, nine of the 10 ETFs shortlisted have even outperformed the NASDAQ Composite Index, which experienced an increase of 73.9% during the 5-year period. Despite the high level of global uncertainty in the last five years, the best large-cap growth ETFs for the long term have also surpassed the performance of safe-haven investments like gold, which observed an increase of 62.3% in the last five years.
Large-cap growth ETFs can either be concentrated on a single sector or multiple sectors. The exposure to multiple sectors offers investors the benefit of diversification across many growth stocks while maintaining cost-effectiveness compared to actively managed growth funds. However, these ETFs come with associated risks like higher volatility as growth stocks have significant price fluctuations. Furthermore, these stocks offer low or no dividend income as they are focused on reinvesting their profits to fuel growth. Some large-cap growth ETFs track popular US large-cap growth indexes like the Russell 1000 Growth Index, S&P 500 Growth Index, and NASDAQ-100. These ETFs typically concentrate on sectors such as technology, consumer discretionary, communication services, and healthcare, resulting in a lower exposure to defensive sectors like consumer staples, energy, and utilities. However, when considering investments in these sectors, it's crucial for investors to exercise caution and select the right growth themes, especially in light of the current economic outlook. Additionally, for investors interested in exploring value-oriented investments, there are also a range of attractive options available, including 12 Best Large-Cap Value ETFs.
Market Outlook
The American Bankers Association (ABA) anticipates real GDP growth slowing down from 2.1% during the first three quarters of 2023 to less than 1% annualized in the next three quarters. However, the momentum in economic growth is expected to improve in the second half of 2023. Furthermore, experts believe that the US Federal Reserve has completed its cycle of interest rate hikes. As of the upcoming meeting of the Federal Open Market Committee (FOMC) on September 20, it is expected that the central bank will maintain the benchmark interest rates within the existing range of 5.25% to 5.5%. Analysts also foresee a potential reversal in this trend, with the US central bank considering lowering the interest rate in either the first or second quarter of 2024. This shift in monetary policy is being driven by signs that inflation in the United States is coming under control, clocking in at 3.7% in August 2023, compared to the peak of 9.1% witnessed in June 2022.
The prospect of no further interest rate hikes and the potential for rate cuts in the future would indeed be welcomed by large-cap growth stocks. These stocks tend to perform well when borrowing costs are low as it allows them to access capital more affordably for expansion and investment. This was evident during the pandemic when the Federal Reserve lowered benchmark interest rates to near zero, contributing to the growth of large-cap growth stocks. Furthermore, the probability of a recession in the next 12 months has also plummeted from a peak of 65% in October 2022 to 30% only, which is another positive for large-cap growth stocks such as Rivian Automotive, Inc. (NASDAQ:RIVN), Lucid Group, Inc. (NASDAQ:LCID), and Albemarle Corporation (NYSE:ALB).
Our Methodology
We have shortlisted the 10 best large-cap growth ETFs based on their 5-year performance as of September 18. We have only screened for ETFs that provide nearly 100% exposure to equities and do not employ derivatives, leverage, swaps, or any other financial instruments to boost their returns. The iShares Russell Top 200 Growth ETF (NYSEARCA:IWY), more commonly known as the iShares US large-cap ETF, is also amongst the notable large-cap growth ETFs shortlisted.
10. First Trust NASDAQ-100 Equal Weighted Index Fund (NASDAQ:QQEW)
5-Year Price Performance: 71.6%
Total Net Assets as of September 18, 2023: $2 billion
Expense Ratio: 0.58%
Number of Holdings: 101
The First Trust NASDAQ-100 Equal Weighted Index Fund (NASDAQ:QQEW) offers exposure to the large-cap growth stocks in the NASDAQ-100 index.
The ETF closely tracks the NASDAQ-100 Equal Weighted Index, which redistributes the weights of the stocks within the NASDAQ-100, excluding financial stocks, so that each component carries an approximately equal weight of around 1%. Equal weighting minimizes concentration risk compared to market cap-weighted ETFs like Invesco QQQ Trust (NASDAQ:QQQ), where mega-caps can dominate. The First Trust NASDAQ-100 Equal Weighted Index Fund (NASDAQ:QQEW) has the highest expense ratio amongst all the ETFs on our list.
9. Vanguard Growth Index Fund (NYSEARCA:VUG)
5-Year Price Performance: 79.9%
Total Net Assets as of September 18, 2023: $182.53 billion
Expense Ratio: 0.04%
Number of Holdings: 234
The Vanguard Growth Index Fund (NYSEARCA:VUG) is one of the largest and most popular large-cap growth ETFs, tracking the CRSP US Large Cap Growth Index. The ETF uses a market cap-weighted methodology.
The Vanguard Growth Index Fund’s (NYSEARCA:VUG) largest holdings include Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), NVIDIA Corporation (NASDAQ:NVDA), and Alphabet Inc. (NASDAQ:GOOGL). Collectively, these stocks represent 39.1% of the ETF’s portfolio. The ETF's top three allocated sectors are information technology, consumer discretionary, and communication services, representing 45.1%, 16.6%, and 13.3% of assets, respectively.
8. iShares Russell 1000 Growth ETF (NYSEARCA:IWF)
5-Year Price Performance: 80.7%
Total Net Assets as of September 18, 2023: $72.09 billion
Expense Ratio: 0.19%
Number of Holdings: 445
iShares Russell 1000 Growth ETF (NYSEARCA:IWF) tracks the Russell 1000 Growth index, which represents the largest 1,000 US companies characterized by higher price-to-book ratios and forecasted growth rates.
As of September 2023, the ETF’s largest holdings as of September 2023 are Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), NVIDIA Corporation (NASDAQ:NVDA), and Alphabet Inc. (NASDAQ:GOOGL), indicating a significant emphasis on prominent technology companies. In terms of sector allocation, the ETF allocates 43.9% to information technology, 16% to consumer cyclical, 11.3% to communication services, and 11% to healthcare.
Here's what Giverny Capital Asset Management, LLC said about Alphabet Inc. (NASDAQ:GOOGL) in its Q2 2023 investor letter:
“I have believed for a while that we’re better served with a lower weight to the tech giants – we ownAlphabet Inc.(NASDAQ:GOOG) (8.1% of our model portfolio at the end of June) and Meta (5.2%) for a 13.3% exposure, or about half the Index’s weight in the giants. And while Alphabet’s 36% return for the first half and Meta’s 138% return were gratefully received, I’m pleased to report that if we strip out that contribution to our overall return, the other 23 stocks we own, constituting 85% of our portfolio (with cash making up the balance), were up 10.2% on a weighted basis.
GCAM owns two of the seven tech mega caps in Alphabet and Meta, and they enjoyed similar rises. As mentioned, Alphabet A&C shares rose 36% while Meta rose 138%. Together, they added 2.38 percentage points to the overall Index return, meaning these seven tech giants cumulatively generated 12.4 percentage points of return, or roughly three-quarters of the Index’s return.
Alphabet and Meta combined sport a $2.25 trillion market cap and between them should generate roughly $120 billion of pretax profit this year. That’s a multiple of 19 times pretax profit, a substantial discount to Microsoft and Apple, and an even larger discount to Amazon, Nvidia and Tesla.”
7. Vanguard Russell 1000 Growth Index Fund (NASDAQ:VONG)
5-Year Price Performance: 81.3%
Total Net Assets as of September 18, 2023: $17.37 billion
Expense Ratio: 0.08%
Number of Holdings: 442
The Vanguard Russell 1000 Growth Index Fund (NASDAQ:VONG) tracks the Russell 1000 Growth Index and provides exposure to large-cap US growth stocks.
The Vanguard Russell 1000 Growth Index Fund (NASDAQ:VONG) includes large-cap companies like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Amazon.com, Inc. (NASDAQ:AMZN) in its portfolio. Together, these stocks have a combined weight of 29.6%. The ETF has the second-lowest expense ratio amongst all the ETFs on our list of the 10 best large-cap growth ETFs.
Here’s what Diamond Hill Capital said about Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2023 investor letter:
“Among our top contributors were insurance company American International Group (AIG), auto retailer CarMax and global online retailerAmazon.com, Inc.(NASDAQ:AMZN).
Amazon’s management team has been working to improve retail profitability, and Q1 results showed progress. In the case of Amazon’s web services (AWS), the market has shifted its focus from where growth will bottom in the near term to how AI can help accelerate the adoption of public cloud services in the future. We believe Amazon’s competitive advantages will continue to grow and that the business has the potential to grow faster than the overall economy in the coming years.”
6. Schwab U.S. Large-Cap Growth ETF (NYSEARCA:SCHG)
5-Year Price Performance: 87.7%
Total Net Assets as of September 18, 2023: $19.8 billion
Expense Ratio: 0.04%
Number of Holdings: 243
Schwab U.S. Large-Cap Growth ETF (NYSEARCA:SCHG) is another solid option for gaining low-cost exposure to large-cap US growth stocks. The ETF tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market Index. Nearly 46% of the holdings in the ETF belong to the information technology sector. It is another option on our list of the 10 best large-cap growth ETFs that follow the market cap-weighted approach. Mega-cap companies Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN) occupy the top three positions in the ETF, accounting for 31.2% of the portfolio.
In addition to ETFs, investors are also going long on individual large-cap growth stocks such as Rivian Automotive, Inc. (NASDAQ:RIVN), Lucid Group, Inc. (NASDAQ:LCID), and Albemarle Corporation (NYSE:ALB).
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Disclosure: None. 10 Best Large-Cap Growth ETFsis originally published on Insider Monkey.
