A Schwab Growth ETF For October

The arrival of October typically brings good tidings for domestic equities, meaning that kicking off the fourth quarter by considering some of the exchange traded funds that are already performing well this year may be a sound strategy.

With growth stocks soaring again in 2018, the Schwab U.S. Large-Cap Growth ETF SCHG is one broad market domestic equity fund to consider this month. SCHG is CFRA Research's focus ETF for the month of October.

What Happened

The $6.9-billion SCHG, which targets the Dow Jones U.S. Large-Cap Growth Total Stock Market Index, entered October with a year-to-date gain of about 16 percent while flirting with record highs. SCHG hit a 52-week high on Monday. While Q4 is historically kind to stocks, some sectors are better bets than others.

“In the last quarter of the year, The S&P 500 averages a 5-percent price return,” Todd Rosenbluth, CFRA's director of ETF and mutual fund research, said in a Monday note.

“However, according to CFRA Chief Investment Strategist Sam Stovall, there has been performance disparity within the sectors of the broader market in the fourth quarter. Information technology (up 6.5 percent), consumer discretionary (6.2 percent) and industrials (5.9 percent) were the best performing of the seven sectors to top 5 percent on average.”

Why It's Important

SCHG, which holds over 400 stocks, is typical of many growth strategies with its large weights to technology and consumer discretionary stocks. Those sectors combine for over half the ETF's weight. Familiar growth stocks like Apple Inc. AAPL and Amazon.com Inc. AMZN are among SCHG's top holdings.

“In mid-September, CFRA Equity Analyst Angelo Zino reiterated a Buy recommendation on AAPL following the company’s product release announcement, including new iPhones and Apple Watch,” said Rosenbluth. “Zino explained price points for all devices are higher than CFRA expected and could provide upside to revenues and earnings per share. The stock remains undervalued based on Zino’s P/E analysis.”

CFRA equity analyst Tuna Amobi has a Buy rating on Amazon.

“Amobi expects AMZN to exceed the midpoint of management's guidance for third quarter 2018 net sales of 23-31 percent and operating income of $1.4 billion to $2.4 billion, amid continued international investments,” Rosenbluth said. 

What's Next

SCHG has other favorable characteristics.

“The ETF has been trading with bullish technical trends, above its 200-day moving average. Meanwhile, more than 300,000 shares change hands on daily basis with a tight penny bid/ask spread. The net expense ratio of 0.04 percent is among the cheapest funds regardless of investment style,” according to CFRA. 

CFRA has an Overweight rating on SCHG, the highest rating the research firm gives to ETFs.

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