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Barbara FriedbergContributor
Barbara A. Friedberg, MS, MBA is a former portfolio manager and university investments instructor. She’s enjoying her dream with publishing credits on US News and World Report, GoBanking Rates, Investopedia, MSN Money, Investor’s Business Daily and more. She helps other learn about personal finance and investing at barbarafriedbergpersonalfinance.com. Her Encyclopedia of Personal Finance is a teaching tool for financial literacy.
Barbara FriedbergContributor
Barbara A. Friedberg, MS, MBA is a former portfolio manager and university investments instructor. She’s enjoying her dream with publishing credits on US News and World Report, GoBanking Rates, Investopedia, MSN Money, Investor’s Business Daily and more. She helps other learn about personal finance and investing at barbarafriedbergpersonalfinance.com. Her Encyclopedia of Personal Finance is a teaching tool for financial literacy.
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Paul Katzeffeditor
Paul is a former senior reporter for Investor’s Business Daily, where he focused on markets, mutual funds, personal finance, retirement planning and tax strategies. In addition, he is the author of three books about how to make the most of a 401(k) account and one book about internet investing. He also wrote a biography of Marvin Gilmore, a Boston civil-rights activist. Paul was the managing editor of the Boston Business Journal; Editor of Consensus, a publication covering alternative dispute resolution in the public sector; Boston correspondent for Money magazine; and staff writer for the Sunday magazine of the Boston Herald American.
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Paul Katzeffeditor
Paul is a former senior reporter for Investor’s Business Daily, where he focused on markets, mutual funds, personal finance, retirement planning and tax strategies. In addition, he is the author of three books about how to make the most of a 401(k) account and one book about internet investing. He also wrote a biography of Marvin Gilmore, a Boston civil-rights activist. Paul was the managing editor of the Boston Business Journal; Editor of Consensus, a publication covering alternative dispute resolution in the public sector; Boston correspondent for Money magazine; and staff writer for the Sunday magazine of the Boston Herald American.
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Updated: Dec 1, 2023, 11:24am
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
The best growth ETFs provide you with diversified portfolios of companies that are growing at above-average rates. These exchange-traded funds own stocks that deliver rapidly increasing sales, cash flows and share prices.
In the period that began after the 2008 financial crisis and lasted until the beginning of the Covid-19 pandemic, growth stocks widely outperformed value stocks. Value outperformed growth during the challenging years of 2020 and 2022. This year, growth stocks have roared back to life once again, overtaking value stocks.
If you believe that growth stocks still have room to run, consider adding a growth ETF to your investment portfolio. To aid your search, Forbes Advisor has identified the best growth ETFs available in the market today, featuring above-average returns, low expense ratios and strong ratings from Morningstar.
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Show Summary
- Best Growth ETFs of December 2023
- Vanguard Russell 1000 Growth ETF (VONG)
- Nuveen ESG Large-Cap Growth ETF (NULG)
- iShares Morningstar Mid-Cap Growth ETF (IMCG)
- Vanguard Mid-Cap Growth ETF (VOT)
- iShares Morningstar Small-Cap Growth ETF (ISCG)
- First Trust Nasdaq 100 Equal Weighted ETF (QQEW)
- WisdomTree International Hedged Quality Dividend Growth Fund (IHDG)
- iShares MSCI EAFE Growth ETF (EFG)
- Methodology
- What Is Growth Investing?
- How Do Growth ETFs Work?
- What to Look for in a Growth ETF
- Value ETFs vs Growth ETFs: What’s the Difference?
- Value ETFs vs Growth ETFs: Which Should You Buy?
- How to Buy Growth ETFs
- Growth ETF FAQs
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Best Growth ETFs of December 2023
| Growth ETFs | Expense Ratio |
|---|---|
| Vanguard Russell 1000 Growth ETF (VONG) | 0.08% |
| Nuveen ESG Large-Cap Growth ETF (NULG) | 0.26% |
| iShares Morningstar Mid-Cap Growth ETF (IMCG) | 0.06% |
| Vanguard Mid-Cap Growth ETF (VOT) | 0.07% |
| Vanguard S&P Small-Cap 600 Growth ETF (VIOG) | 0.15% |
| iShares Morningstar Small-Cap Growth ETF (ISCG) | 0.06% |
| First Trust Nasdaq 100 Equal Weighted ETF (QQEW) | 0.58% |
| iShares S&P 500 Growth ETF (IVW) | 0.18% |
| WisdomTree International Hedged Quality Dividend Growth Fund (IHDG) | 0.58% |
| iShares MSCI EAFE Growth ETF (EFG) | 0.36% |
Vanguard Russell 1000 Growth ETF (VONG)
Expense Ratio
0.08%
Dividend Yield
0.71%
10-Year Avg. Ann. Return
14.63%
Expense Ratio
0.08%
Dividend Yield
0.71%
10-Year Avg. Ann. Return
14.63%
Why We Picked It
If hindsight gave you 20-20 investment vision, you would have bought and held the Vanguard Russell 1000 Growth ETF a decade ago. Since then, the fund has notched a fine average annual return of about 14%—versus about 12% for the S&P 500. Unfortunately, past returns don’t guarantee future performance.
VONG owns roughly 500 of the largest, growthiest U.S. companies. With an overall price-to-earnings ratio above 30, you’re paying more than $30 for each dollar of earnings for a share of VONG. With about 45% of the fund invested in the technology sector, VONG is not for the faint-of-heart. The fund has slammed its category peers during every prior period, likely due in part to its rock-bottom expense ratio.
Nuveen ESG Large-Cap Growth ETF (NULG)
Expense Ratio
0.26%
Dividend Yield
0.30%
Avg. Ann. Return Since Inception (December 2016)
15.90%
Expense Ratio
0.26%
Dividend Yield
0.30%
Avg. Ann. Return Since Inception (December 2016)
15.90%
Why We Picked It
The Nuveen ESG Large-Cap Growth ETF owns large-cap growth companies that meet environmental, social and governance investing criteria. In contrast with its peers, NULG includes a greater allocation of mid-cap stocks and falls a bit lower than average on the quality spectrum.
This sustainable fund is roughly 40% invested in technology stocks. It has approximately another 15% in consumer cyclicals, and roughly 10% in the healthcare sector. Morningstar assigns NULG a silver medal and expects the fund to outperform its benchmark index.
Vanguard Mid-Cap Growth ETF (VOT)
Expense Ratio
0.07%
Dividend Yield
0.69%
10-Year Avg. Ann. Return
9.80%
Expense Ratio
0.07%
Dividend Yield
0.69%
10-Year Avg. Ann. Return
9.80%
Why We Picked It
The Vanguard Mid-Cap Growth ETF owns roughly 150 stocks. Its average annual earnings growth rate has topped its Morningstar category’s pace by several percentage points in recent years. This alternative to the iShares Morningstar Mid-Cap Growth ETF has a larger allocation to its top-10 holdings than IMCG. It tilts towards lower-quality companies with less momentum than the category average. This does not deter the Morningstar analysts from assigning the fund a gold designation.
VOT sports a P/E ratio of roughly 25—you’ll spend about $25 to buy one dollar of VOT earnings. The fund also falls lower than its peers in the momentum category. It’s tech-heavy, with an allocation around 30%. Healthcare and industrial stocks come in next. Mid-cap growth investors, seeking to limit exposure to growth stocks, should like VOT.
Vanguard S&P Small-Cap 600 Growth ETF (VIOG)
Expense Ratio
0.15%
Dividend Yield
1.26%
10-Year Avg. Ann. Return
7.96%
Expense Ratio
0.15%
Dividend Yield
1.26%
10-Year Avg. Ann. Return
7.96%
Why We Picked It
The Vanguard S&P Small-Cap 600 Growth ETF tracks small-cap growth companies in the S&P 600 Index. VIOG has an average annual five-year earnings growth rate just a tad lower than the widely followed big-cap S&P 500 Index. And its P/E ratio is around 15. That is lower than the big-cap S&P 500’s P/E around 20.
VIOG’s combination of decent growth and low P/E ratios look like a likely recipe for future share-price appreciation, as the valuation catches up with the growth rate.
VIOG’s favorite sectors are technology, industrials an financial services. With only about 12% of fund assets in the top 10 holdings, you’re getting broad diversification.
First Trust Nasdaq 100 Equal Weighted ETF (QQEW)
Expense Ratio
0.58%
Dividend Yield
0.61%
10-Year Avg. Ann. Return
12.85%
Expense Ratio
0.58%
Dividend Yield
0.61%
10-Year Avg. Ann. Return
12.85%
Why We Picked It
The First Trust Nasdaq-100 Equal Weighted ETF begins with the 100 most prominent companies on the Nasdaq stock exchange, excluding financial firms, then holds them in equal one-percent proportions.
The fund’s equal-weight strategy is in contrast with market-cap-weighted funds, which own companies in proportion to their size. The equal-weight strategy ensures that no single company dominates the fund. It also adds a slight nudge toward the value stock end of the spectrum in a portfolio that otherwise tilts toward large, fast-growing companies.
QQEW’s portfolio owns a higher concentration of utility, technology, industrial and consumer staples companies than its category peers. It is underweight in the financial services and healthcare sector. The Morningstar gold-ranked fund with category beating performance during the one- through 15-year periods says QQEW has done a good job for investors. Yet, investors need to be mindful that the investment markets during these periods have favored those types of growth stocks.
WisdomTree International Hedged Quality Dividend Growth Fund (IHDG)
Expense Ratio
0.58%
Dividend Yield
10.22%
Avg. Ann. Return Since Inception (May 2014)
8.03%
Expense Ratio
0.58%
Dividend Yield
10.22%
Avg. Ann. Return Since Inception (May 2014)
8.03%
Why We Picked It
Investors who want to own high-quality, fast-growing international stocks outside of the U.S. and Canada need look no further than WisdomTree International Hedged Quality Dividend Growth Fund. This ETF aims to give investors exposure to dividend-paying companies with growth characteristics in the developed world, excluding the U.S. and Canada.
At the same time, IHDG seeks to hedge exposure to fluctuations between the U.S. dollar and foreign currencies. That’s because global exchange rates can be volatile. The fund devotes more than 80% of its holdings to large-cap foreign firms. Roughly 15% of its portfolio is mid-caps. The rest is in the smallest firms.
Roughly half of IHDG’s portfolio comprises stocks from Switzerland, the United Kingdom and France. Japanese companies make up about 8%. The remainder are various other global stocks. IHDG’s Morningstar Bronze rating indicates the research firm expects IHDG to outperform its peer group or benchmark over a full market cycle.
Methodology
We began our hunt for the best growth ETFs with a pool of 3,183 exchange-traded funds. We filtered this group for large-, mid-, small-cap growth, and for funds with the lowest expense ratios. From that list we deleted sector funds and other narrow strategies.
This initial screen left us with 60 growth stock ETFs. Funds with Gold, Silver and Bronze Morningstar designations remained on the list. We organized the ETFs according to category and included passive, active, international and ESG funds.
Our final review included funds with a 10-year or longer history and index- and/or category-beating performance over multiple time periods. Our final list included two actively traded funds, one large-cap ESG fund, two international large-cap funds, two mid-cap, and two small-cap funds. In total there were five large cap growth ETFs.
These funds are meant to be added to an already diversified investment portfolio. It’s risky to craft a total investment mix comprised solely of growth funds.
What Is Growth Investing?
Growth investing is strategy that aims to buy the stocks of companies that are growing their revenues or cash flows faster than the rest of the market. As the name suggests, growth is the priority—that means growth companies reinvest their profits in order to expand their businesses more rapidly.
Investing in growth companies offers you the chance to earn greater returns from climbing stock prices, but this approach is riskier than other strategies. There’s no guarantee that a growth company will drive greater profitability over the longer term. In addition, growth stocks experience more volatility, marked by dramatic changes in value. It’s an approach that’s best suited for risk-tolerant investors with a longer time horizon.
Growth stocks tend to see strong gains during periods of economic expansion when interest rates are low. After the financial crisis of 2008, for example, growth stocks saw a massive rally that lasted right up until the end of 2021. Over that period, they significantly outperformed value stocks and the S&P 500.
Unfortunately, the era of historically low interest rates and climbing growth stock valuations has ended. With inflation near 40-year highs, the Federal Reserve has embarked on a rate hike campaign that is taking the wind out of the sails of growth stocks.
How Do Growth ETFs Work?
Growth ETFs track an underlying index that identifies growth companies based on a number of factors. Depending on the index, these factors may include growth in earnings, sales and price. Some ETFs also consider value metrics to either find deep growth companies or to find growth companies at a reasonable price.
The ETFs included in our list take different approaches to growth investing. The result is a list of funds with P/E ratios that may be above average. Some funds have heavy concentrations in the top three to five companies, while others do not.
The different approaches to growth are also reflected in both the number of companies in each fund and their average market capitalization. The average market cap ranges from about $50 billion to more than $500 billion. The number of companies in each fund ranged from about 30 to 500.
What to Look for in a Growth ETF
- A low expense ratio. Growth ETFs charge expense ratios, which tell you how much you’ll pay annually to own the fund, expressed as a percentage of your total investment. The annual fee is typically subtracted on a quarterly basis from your returns. In most cases, the larger the fund, the lower the expense ratio.
- A track record of success. Review a fund’s past performance to help inform your investment decisions. Looking at an ETF’s five- and 10-year performance shows you whether management has maintained good returns over time. Just remember, past performance is no guarantee of future results.
- Good diversification. Broad diversification is the biggest strength of ETFs. When choosing a growth ETF, check to see if funds own stocks across a variety of sectors, or whether holdings are largely concentrated among tech stocks. Better sector diversification can help reduce your risk.
- The right fund holdings. It’s always essential to check out a fund’s top holdings and see whether they align with a growth investing strategy and the fund’s investment objective. Remember, every growth fund is different.
Value ETFs vs Growth ETFs: What’s the Difference?
Growth ETFs own companies that are expected to grow their revenue, earnings or cash flows at a faster rate than the overall market, often thanks to innovative technology or unique business models. These companies tend to have higher valuations and lower dividend yields, as they reinvest their earnings to drive more growth.
On the other hand, value ETFs invest in companies that are currently trading at a price lower than their intrinsic value, as determined by factors such as financial statements, earnings, and assets. These value stocks are often more established and have a history of paying dividends.
Growth ETFs can offer higher potential returns, but they also come with greater risk. Value ETFs deliver stability and lower risk, at the cost of a much slower rate of appreciation over time.
Value ETFs vs Growth ETFs: Which Should You Buy?
Investors who want rapid appreciation might prefer to buy growth ETFs, since they offer potentially higher returns if their holdings are able to deliver elevated returns. But growth stocks are more volatile and may be subject to greater risk.
In contrast, value ETFs offer more stability and consistent returns, but may not have the same growth potential as growth ETFs.
Ultimately, the decision to invest in growth ETFs or value ETFs depends on your individual risk tolerance and goals. A diversified portfolio should include both growth and value funds to balance risk and return.
It’s important to conduct thorough research and consult with a financial advisor before making any investment decisions.
How to Buy Growth ETFs
The ETFs listed above provide you with a simple and straightforward way to get exposure to growth stocks. Here’s a simple step-by-step guide to buying growth ETFs:
Open a Brokerage Account. A brokerage account is your gateway to the stock market. The type of account you choose depends on your financial goals. If you’re buying growth ETFs to invest for retirement, choose an individual retirement account (IRA) , which offers valuable tax benefits but limits your annual contributions. For more near-term goals, go with a taxable brokerage account.
Research Growth ETFs. Once you’ve opened a brokerage account, research the ETFs most likely to help you reach your goals. Most growth ETFs track the performance of growth stock indexes, and are priced very competitively. But some are active ETFs, where fund managers pick growth stocks and frequently rebalance the fund’s portfolio in an attempt to beat growth indexes. This is a more expensive approach, but it can offer greater returns.
Buy Growth ETFs. You’ll need to transfer cash into your brokerage account in order to buy shares of growth ETFs. Search for your chosen ETF by ticker symbol. Some brokers make it easy to buy shares right in the ticker research section. If not, you’ll need to go to the trade section of the brokerage and enter the ETF’s ticker. Enter the number of shares you want to buy—in most cases you enter a market order, meaning your purchase request goes through at the current price of the ETF instead of holding out for a particular price. Use a limit order to get growth ETF shares at a specified price.
Set Up a Purchase Plan. Investing isn’t a one-and-done thing. You should consider making a plan to buy shares of growth ETFs or other investments regularly to help you reach your goals. Luckily, most brokerages allow you to set up a purchase plan.
The author(s) held no positions in the securities discussed in the post at the original time of publication.
Growth ETF FAQs
What’s the difference between growth ETFs and growth stocks?
Growth stocks are individual companies that are growing their revenues and cash flow well above the average. But buying individual stocks can be very risky, since your investment is tied to the performance of one company. Growth ETFs are a basket of hundreds of different growth stocks, which limits your risk exposure.
Should you invest in growth ETFs?
If you want to put some of your portfolio into high-growth stocks, and you’re comfortable with more volatility in exchange for the possibility of getting above-average returns, you should consider investing in growth ETFs. If higher-volatility investments, with their rapid fluctuations in value, make you nervous, it’s probably best to stick with more conservative value ETFs.
What are dividend growth ETFs?
Dividend growth ETFs are not growth stock investments. Instead, dividend growth ETFs invest in stocks that pay dividends and have a demonstrated history of growing dividends consistently over time. The goal is to achieve steadily growing distributions to fund owners, leading to a higher total return.
How do growth ETFs perform in a bear market?
Growth ETFs are higher-risk investments. Since growth stocks have valuations that factor in expectations for strong future growth, any market developments that reduce revenue or cash-flow growth can disappoint growth investors. Unfortunately, a bear market can badly damage the sources of a growth stock’s success, and growth stocks tend to perform poorly during recessions and bear markets.
How many ETFs should I own?
As a general rule of thumb, it’s suggested to have at least five to 10 ETFs in a portfolio to achieve adequate diversification. However, this number can vary depending on the size of the portfolio and the specific investment goals of the investor.
It’s also important to regularly review and rebalance the portfolio to ensure it stays aligned with the investor’s goals and risk tolerance. The number of ETFs an investor should own is a personal decision based on their circ*mstances and investment objectives.
Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circ*mstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results.
Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.
Contributor
Barbara A. Friedberg, MS, MBA is a former portfolio manager and university investments instructor. She’s enjoying her dream with publishing credits on US News and World Report, GoBanking Rates, Investopedia, MSN Money, Investor’s Business Daily and more. She helps other learn about personal finance and investing at barbarafriedbergpersonalfinance.com. Her Encyclopedia of Personal Finance is a teaching tool for financial literacy.
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