Best Growth ETFs for Q1 2022


Growth exchange-traded funds (ETFs) are one of two broad categories of ETFs, the other one being value ETFs. Growth ETFs are designed to invest in a basket of stocks whose underlying companies have the potential for rapid growth, as opposed to stocks whose prices are relatively undervalued. Growth companies in these funds include Microsoft Corp. (MSFT), DocuSign Inc. (DOCU), and Micron Technology Inc. (MU), among others.

These ETFs can provide above-average returns, but they also carry more risk because fast growth tends to be accompanied by higher volatility, especially during times of economic weakness. These ETFs may not be the best vehicles for investors looking for regular investment income. That’s because many growth companies reinvest their earnings into future growth instead of paying dividends to their shareholders.

Key Takeaways

  • Growth stocks slightly outperformed the broader market over the past year.
  • The exchange-traded funds (ETFs) with the best one-year trailing total return are PSI, FYC, and PTF.
  • The top holdings of these ETFs are NVIDIA Corp., class A shares of Dillard’s Inc., and Intuit Inc., respectively.

There are 77 smart beta growth ETFs that trade in the United States, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). Smart beta is a type of investing strategy that offers benefits from both passive and active investing. Smart beta funds seek to passively track an index while at the same time using alternative weighting schemes based on liquidity, momentum, value, growth, or other characteristics typical of factor investing.

Growth stocks, as measured by the S&P 500 Growth Index, slightly outperformed the broader market over the past year. The index provided a one-year trailing total return of 34.8% compared to the S&P 500’s one-year trailing total return of 32.1%, as of Nov. 11, 2021. The best-performing growth ETF, based on performance over the past year, is the Invesco Dynamic Semiconductors ETF (PSI).

We examine the three best growth ETFs below. All numbers below are as of Nov. 11, 2021.

  • Performance Over One-Year: 61.9%
  • Expense Ratio: 0.56%
  • Annual Dividend Yield: 0.13%
  • Three-Month Average Daily Volume: 43,526
  • Assets Under Management: $859.0 million
  • Inception Date: June 23, 2005
  • Issuer: Invesco

PSI seeks to track the Dynamic Semiconductor Intellidex Index, which is composed of 30 U.S. semiconductor companies that have been screened using a variety of investment factors, including price and earnings momentum, quality, management action, and value. The ETF invests at least 90% of its assets in the stocks that make up the index. It provides exposure to companies that are primarily engaged in the manufacturing of semiconductors. The multi-cap fund tends toward small- and mid-cap companies. Its top three holdings are NVIDIA Corp. (NVDA), KLA Corp. (KLAC), and Applied Materials Inc. (AMAT), all of which are manufacturers of semiconductors and related equipment.

  • Performance Over One-Year: 52.0%
  • Expense Ratio: 0.71%
  • Annual Dividend Yield: 0.11%
  • Three-Month Average Daily Volume: 34,526
  • Assets Under Management: $381.7 million
  • Inception Date: April 19, 2011
  • Issuer: First Trust

FYC aims to track the Nasdaq AlphaDEX Small Cap Growth Index, which is composed of stocks from the Nasdaq U.S. 700 Small Cap Growth Index that meet a certain set of investment criteria, including price momentum, sales-to-price ratio, and sales growth. The ETF provides exposure to small-cap stocks with high growth potential. The information technology sector receives the largest allocation, followed by healthcare and consumer discretionary. Its top three holdings are class A shares of Dillard’s Inc. (DDS), a department store chain; LendingClub Corp. (LC), a peer-to-peer lending company; and Calix Inc. (CALX), a cloud, software, and services provider for the communications services industry.

  • Performance Over One-Year: 49.4%
  • Expense Ratio: 0.60%
  • Annual Dividend Yield: N/A
  • Three-Month Average Daily Volume: 17,511
  • Assets Under Management: $401.8 million
  • Inception Date: Oct. 12, 2006
  • Issuer: Invesco

PTF tracks the Dorsey Wright Technology Technical Leaders Index, which identifies stocks exhibiting strong momentum and is composed of a minimum of 30 securities from the Nasdaq U.S. Benchmark Index. The index uses relative strength to gauge a stock’s momentum. The ETF generally invests at least 90% of its assets in securities that make up the index. The software industry receives the largest allocation in the fund, followed semiconductor and semiconductor equipment as well as the IT services industries.

PTF invests in companies across the market-cap spectrum and is biased toward companies with strong growth potential, as opposed to those with strong value characteristics. Its top three holdings are Intuit Inc. (INTU), a developer of business and financial management software solutions; class A shares of Cloudflare Inc. (NET), a global cloud services provider; and Advanced Micro Devices Inc. (AMD), a semiconductor manufacturer.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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