Here are the top 7 growth ETFs that you can invest in in 2023 to take advantage if this recession and market crash.
The recession is not a surprise anymore, and since 2022 we’ve seen many investors shift away from growth investing to more safe and low risk companies.. This has brought giant companies like Nvidia, Amazon, Meta, Shopify or basically all big tech giants to lose up to more than 50% of their value.
But as Warren Buffett says, “Be greedy when others are fearful.” So if you’re a growth-oriented investor, now is the perfect moment to invest in ETFs in the growth sector because after a crash, a great growth always follows.
At the end of the Post I also want to show you in a clear way something that, if you don’t know it already, will literally blow your mind. It’s about the so-called Expense Ratio or Management Fee of an ETF, that is basically what the creator of the ETF takes as fee from you every year.
7. Vanguard Mega Cap ETF (MGC)
Coming in at number 7 we have Vanguard Mega Cap ETF (MGC). This ETF has $3.8 billion under management, a Dividend yield of 1.46% and an expense ratio of 0.07%, or $7 annually for every $10,000 invested.
As opposed to th e S&P500 index, MGC offers a “megacap” approach that is focused on 240 of the very largest U.S. stocks, with a 31% focus on the technology sector and with the biggest 10 holdings occupying 33.9% of the net assets. This ETF provides a convenient way to get diversified exposure to the largest U.S. stocks representing approximately the top 70% of market capitalization.
In the last 5 years the Vanguard Mega Cap ETF grew with a cumulated return of 93.11%. That means that if you invested 10.000$ 5 years ago you would now have roughly 19.300$.
The largest holdings in this ETF are Apple, Microsoft, Alphabet, Amazon and Tesla.
In the Vanguard’s website this ETF is evaluated with a risk potential of 4 out of 5, meaning they consider it a moderate to aggressive fund. These types of funds with a risk level of 4 are appropriate for investors who have a long-term investment horizon (10 years or longer)
6. iShares MSCI EAFE Growth ETF (EFG)
Coming in at number 6, the iShares MSCI EAFE Growth ETF – what name is that? – This ETF has $8.8 billion of Assets under management, a Dividend yield of 1.9% and an expense ratio of 0.35%, or $35 annually for every $10,000 invested.
The advantage of this ETF is that it allows you to diversify by focusing on European, Asian and Far East Companies. Now, to be precise, Japan, Hong Kong and Singapore are the Asian Countries included in this ETF, covering respectively roughly 22%, 3% and 1%. Australia is in with around 7-8% and the rest belongs to Europe. The ETF focuses on large-cap stocks and contains companies like Roche, Louis Vuitton, Nestle and AstraZeneca. These are all corporations larger than $100 billion with powerful multinational operations, so you’re not investing in high-risk emerging market stocks here.
The good thing is also that even the biggest companies here don’t take more than 4% of the total weight of the portfolio. Moreover, the sector distribution is not strongly focused on the Information Technology Sector, which is strongly volatile, but instead on Industrials and Health Care. This gives the ETF a stability factor that will give you peace of mind during the future market fluctuations. If you really want exposure to rising profits and sales regardless of geography, EFG is one of the best growth ETFs you can buy.
5. iShares U.S. Technology ETF (IYW)
Coming in at number 5, the iShares U.S. Technology ETF – for those who love the technology sector. With $7 billion of Assets under management, a 12-month trailing dividend yield of 0.3% and an expense ratio of 0.41%, or $41 annually for every $10,000 invested, IYW seeks to match the performance of the Dow Jones U.S. Technology Index before fees and expenses. It offers you the biggest names in tech companies like Apple, that accounts for about 18% of total assets, followed by Microsoft Corp (MSFT, 16%) and Alphabet Inc Class A and C (GOOGL + GOOG) for a total of almost 11%.
Beyond the biggest names, the fund offers about 150 other companies up to some small growing companies like the $200 million market cap Vroom (VRM).
The fund is sponsored by Blackrock and is one of the largest ETFs attempting to match the performance of the Technology – Broad segment of the equity market.
IShares U.S. Technology ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, IYW is an outstanding option for investors seeking exposure to the Technology ETFs segment of the market.
Moreover the ETF has a beta of 1.12 and with about 164 holdings, it effectively diversifies company-specific risk.
This ETF had a cumulative growth of around 215% in the last 5 years, that means if you invested 10.000$ you would now have around 21.500$, and this is after taking into account the big crash that this year afflicted most growth ETFs including this.
4. Invesco S&P 500 GARP ETF (SPGP)
At the number 4 I’m placing the Invesco S&P 500 GARP ETF. $843 million of Assets under management, a Dividend yield of 0.8% and an expense ratio of 0.36%, or $36 annually for every $10,000 invested, the GARP ETF stands for “Growth at a Reasonable Price.”.
This fund is a passively managed ETF designed to offer broad exposure to the Large Cap Growth segment of the US equity market. It consists of roughly 75 stocks that are included in the S&P 500 index and have GARP characteristics. These stocks are scored and chosen not only by fundamentals like earnings per share and revenue growth, but also by valuation metrics like return on equity and price-to-earnings (P/E) ratio.
The fund has performed strongly over the last five years. It has heaviest allocation to the Healthcare sector–about 30.90% of the portfolio. Information technology and financials round up with around 18% each, then industrials with 13%.
With a 5-year return, annualized, of 20.8% per year, the GARP ETF outperformed the S&P500 in the last years and if you want an ETF that scores companies based on all important valuation metrics this is a great option for you.
3. Vanguard Mid-Cap Growth ETF (VOT)
Coming in at number 3 we have the Vanguard Mid-Cap Growth ETF, with $10 billion in Assets under management, a dividend yield of 0.50% and a ridiculously low expense ratio of 0.07%, or $7 annually for every $10,000 invested.
Vanguard ETFs always make the top of the lists because of their performances but also because they always have low expense ratios like this one. Now, if you think that yeah, 0.07% expense fee is great but also 0.7% or 0.5% wouldn’t be so bad, than you need to see the end of this video because I’m going to show you how this small difference in management fee is going to make you poor in the long term. Really, you need to see this.
But now let’s come back to the Vanguard Mid-Cap Growth ETF. This ETF focuses on mid-sized U.S. stocks and this is a great feature because these companies are neither so large that they risk being too mature, nor so small that they can go bankrupt because of a few bad quarters.
This $10 billion fund has just under 200 stocks, with top holdings like diabetes monitoring company Dexcom (DXCM) and semiconductor company Synopsys (SNPS), among others. Although I guess you’ve never heard of these companies, see it like this: we are talking about a total of $80 billion in market value for the companies in this ETF, which is huge, but still they are not companies that everybody talks about and therefore carry a high risk of being overvalued.
On a sector level, VOT is focused on technology with around 30% of the cake in this sector, while other sectors like materials, utilities, consumer staples and telecom, all collectively add up to around 7% of the entire portfolio.
2. iShares Russell Top 200 Growth ETF (IWY)
Coming in at number 2 we have the iShares Russell Top 200 Growth ETF, with $4.4 billion in Assets under management, a 12m Trailing Dividend yield of around 0.64% and an expense ratio of 0.20%, or $20 annually for every $10,000 invested.
The fund is sponsored by Blackrock and is one of the larger ETFs attempting to match the Large Cap Growth segment of the US equity market.
Large cap companies usually have a market capitalization above $10 billion. They tend to be stable companies with predictable cash flows and are usually less volatile than mid and small cap companies.
This ETF grew in the last 5 years with an annualized average return of 22%, which is just crazy. To give you an idea, If you invested 10.000$ in this ETF 5 years ago you would now have around 21.000$ in your portfolio. Doubling your money in 5 years is already a great result but consider also that if you sold in January 2022, before the crisis started, you would take home 28.000$, almost 3 times your investment, after only 5 years.
1. Vanguard Growth ETF (VUG)
As number 1 on this list I couldn’t help choosing the Vanguard Growth ETF, the leader among large-cap growth ETFs. $74.2 billion in Assets under management, a Dividend yield of 0.6% and an expense ratio of only 0.04% – yes, you heard correctly, just $4 annually for every $10,000 invested.
The Vanguard Growth ETF is the most known Growth Fund and of course it’s biased toward blue-chip technology stocks, with top holdings including Apple (AAPL) and Microsoft (MSFT). Now, there’s not much to say about this ETF because it’s surely your best choice overall if you want to invest in growth companies for a great long term gain.
VUG is the simplest way to gain cheap, diversified exposure to all the big names that probably come first to mind when you’re thinking about growth. It’s not as sophisticated and particular as some other ETFs I mentioned but this is also its strength point because you can just dollar cost average on this ETF and it offers you a straightforward approach to growth via large U.S. stocks.
The destructive effect of the Management Fee
Now I promised you at the beginning of the video that I would show you something about the Expense Ratio or Management Fee of the ETF and that if you didn’t know it already it would blow your mind. So here it is.
Let’s say that you can choose between two ETFs and that both of them are going to give you a gain of 9% per year. Only the ETF nr. 2 has an Expense Ratio of 0.7%, while the nr. 1 only 0.07%, like most Vanguard ETFs. At first glance you would say that 0.7% fee of ETF Nr. 2, which is just 70$ for 10.000$ invested, is not such a big deal. But let’s compare the effect in the long term.
If you keep both investments untouched for 45 years, because you want to save them for retirement, the 10.000$ investment in the ETF nr. 1 becomes $468,281, while the investment in the ETF nr. 2 only gives you $352,296. The difference between the two results, which amounts to €115,985, was all eaten by the expense ratio of 0.7%. So just because you chose 0.7% instead of 0.07%, you end up losing 25% of what you would have had if you invested it in the ETF Nr. 1.
It’s crazy that a difference of only 0.63% in the expense ratio can give you in the long term a loss of 25% or even more. And what happens if you are crazy enough and instead of investing in a passively managed ETF you invest through your bank in an actively managed fund with a fee of 2%? Your investment will grow in 45 years to a lousy sum of €194,699.94 and the fund manager of the bank will have taken from you €273,581.93, making much more than what you got. This is crazy, isn’t it? And still, many people don’t give enough importance to the Expense Ratio and some people still invest in actively managed funds.
Alright these were my 7 picks on growth ETFs that you might want to invest in, considering the market crisis and recession we are experiencing. Remember that dropping prices shouldn’t frighten you but instead you should see them as an opportunity to buy at a cheap price. This is my first video where I list ETFs to invest in and I’d love to know if it’s something that interests you or not because usually in this youtube channel I focus on more general topics around personal finance and self development.
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