Growth Is The Cheap With This ETF

When it comes to individual investment factors, much of the focus has been on value and that has been the case for over a year now. With value garnering so much attention and plenty of new assets from investors, a valid contrarian idea could be to revisit growth stocks and the related exchange traded funds.

A growth ETF to consider is the iShares Core S&P U.S. Growth ETF IUSG.

The $1.2 billion IUSG is a seasoned member of the growth ETF field, having debuted nearly 17 years ago. IUSG is up 5 percent in 2017. IUSG's underlying index was changed last month and the annual fee on the ETF was reduced to 0.05 percent, or $5 on a $10,000 stake, down from 0.07 percent.

“The new index provides very similar exposure to the Russell 1000 Growth Index. In fact, more than 85% of their assets overlap, so they track each other closely. Like the Russell index, the fund's new benchmark targets U.S. large- and mid-cap stocks representing the faster-growing and more richly valued half of their market segment,” said Morningstar in a recent note.

IUSG is typical of growth ETFs in that it's heavily dominated by the technology and consumer discretionary sectors. Those sectors combine for nearly half of IUSG's weight. Healthcare and industrial names combine for 26 percent of the ETF's lineup.

Among the nearly 570 stocks found in IUSG's lineup are familiar are growth names, such as Apple Inc. AAPL, Amazon.com, Inc. AMZN and Facebook Inc FB. An important component of IUSG's index methodology is that all member firms are profitable.

IUSG's holdings “tend to have better earnings-growth prospects and profitability (reflected in their higher average return on invested capital) and are more likely to sport durable competitive advantages than their value counterparts. These characteristics are reflected in their higher valuations. As a result, growth stocks are not necessarily better investments than value stocks. From its inception in December 1978 through January 2017, the Russell 1000 Growth Index (which offers similar exposure to this fund) actually lagged the Russell 1000 Value Index by 1.2 percentage points annualized,” adds Morningstar.

Just because IUSG is a growth ETF doesn't mean it's significantly more volatile than standard equity funds. IUSG's three-year standard deviation of about 11.5 percent is only about 75 basis points above the same metric on the S&P 500.