In this piece, we will take a look at the ten best performing growth ETFs in 2023. If you want to skip our introduction to the stock market and growth investing, then check out 5 Best Performing Growth ETFs in 2023.
Growth really is the buzzword on the stock market. After all, it might not be inaccurate to suggest that growth is the primary reason that thousands of investors flock to the stock market every day. The current interest rate environment offers savers a nice opportunity to grow their funds in bank accounts, but while the rates offer a return over the principal, they do not grow the principal itself. Investing in stocks, on the other hand, offers the opportunity for pure principal growth as well as compounded growth or a return on investment in the form of dividends.
Yet, as is the case with most things in the world, the higher the stakes, the bigger the costs. Investing in stocks comes with the caveat of complete wipe outs in investment should the investment decision go bad. On the flip side, putting money in a bank account carries zero risk of your funds dropping in value or disappearing unless they are from illegitimate sources.
These days, all eyes in the stock market are on the Federal Reserve. While most investors had started to take sighs of relief earlier this year as the American economy remained robust and a recession did not materialize, the second half of the year is proving to be trickier. The big bit in the market right now is the effect of rising oil prices on inflation, and whether the Federal Reserve might be raising rates even more to make sure that inflation remains on a downward trend. These worries are fueled by economic resilience as well, since a well performing or growing economy gives the central bank more leeway to raise rates.
The Fed is slated to make its next monetary policy decision soon, and as we head into the crucial event, two markets are showing considerable fluctuations. The first of these is the battered bond market which has been on its toes for years as interest rates first started to drop and then surged. Bonds really don't like monetary policy uncertainty, as when rates are rising existing bonds drop in value and when they are falling, bond issuers are unwilling to offer them since they want a better deal for their debt. The market is also influenced by the Fed's forecasts for the benchmark rate, and heading into the September Fed moot, this guidance is more important than ever. This is because the central bank will provide one of the most important dot plots not only for the bond market but also for the stock market.
This graph will focus on the central bank's estimates of future interest rates, covering how long they will remain elevated and when will the first rate cuts start taking place. The recent surge in global oil prices on the back of Saudi led oil production cuts has stoked fears of inflation rearing its head again, and as we mentioned above, this creates incentives for the Fed to either keep the rates higher for longer or raise them higher than feared. Investors are on the go around to figure out where rates will stand a year from now and will be watching the Federal Reserve with eagle eyes to understand these things. Should the central bank continue to forecast another rate hike for this year and reduce its estimates for the cuts in 2024 then the 2 year U.S. government treasuries would be particularly vulnerable, and investors are aware of this fact as the yields for these securities have crossed 5%.
Another key market that is on its toes ahead of the Fed's latest decision is the currency market. The world's most widely used international currency, the U.S. dollar has soared to multi month highs as of late as it recovers all losses since the mini banking crisis in America earlier this year. Data shows that hedge funds, in particular, are piling on the greenback, with figures from the Commodity Futures Trading Commission (CFTC), hedge funds have taken a net of 18,000 long positions on the dollar for the second week of September, which is a sharp reversal from the 25,175 net shorts just a week back. This is a tremendous shift in smart money positions, and it reflects the hedge funds' beliefs about the expected future state of the world economy which has reinvigorated sentiment around the U.S. dollar. These decisions are influenced by the leeway that a stronger U.S. economy provides the Federal Reserve to hold interest rates high and allows it to raise rates at least once more this year by 25 basis points.
Switching gears to take a look at investing, one popular strategy is growth investing. This strategy seeks to pick out firms that can outpace the industry when it comes to growing revenue, and the most commonly used approach to select these stocks is the price to earnings ratio. This ratio measures the premium that investors are paying on the market for the shares compared to a company's ability to bring in earnings and turn a profit.
Today, we'll take a look at the best performing ETFs in 2023, with the top three picks being Invesco QQQ Trust (NASDAQ:QQQ), Invesco NASDAQ 100 ETF (NASDAQ:QQQM), and Vanguard Mega Cap Growth Index Fund (NYSE:MGK).
10 Best Performing Growth ETFs in 2023
Our Methodology
To compile our list of the best performing growth ETFs in 2023, we made a list of the 20 biggest small, mid, and large cap growth ETFs as categorized by Morningstar Financial. Then, their year to date monthly total trailing returns were calculated, and the top ten growth ETFs in 2023 are listed below.
10 Best Performing Growth ETFs in 2023
10. iShares Russell Mid-Cap Growth ETF (NYSE:IWP)
Year to date Daily Total Returns: 21.20%
The iShares Russell Mid-Cap Growth ETF (NYSE:IWP) is part of the iShares fund family. It has $13 billion in net assets and was set up in 2001. As the title suggests, the ETF invests primarily in mid cap and growth companies. The fund limits itself to investing primarily in domestic U.S. companies, and its top three stock picks are Apollo Global Management, Inc. (NYSE:APO), IDEXX Laboratories, Inc. (NASDAQ:IDXX), and Cheniere Energy, Inc. (NYSE:LNG). Along with Invesco NASDAQ 100 ETF (NASDAQ:QQQM), Invesco QQQ Trust (NASDAQ:QQQ), and Vanguard Mega Cap Growth Index Fund (NYSE:MGK), it is one of the best performing growth ETFs in 2023.
9. iShares S&P 500 Growth ETF (NYSE:IVW)
Year to date Daily Total Returns: 21.83%
iShares S&P 500 Growth ETF (NYSE:IVW) is the first large cap growth ETF on our list and its heft is evident in the fact that it has $36 billion in net assets. The fund is also part of the iShares fund family and it was set up in 2000. Its benchmark index is the S&P 500 Growth index, and the fund has invested in 236 companies with an average price to book ratio of 7.32 and an average P/E ratio of 24.36, which is quite suitable for a growth ETF.
8. SPDR Portfolio S&P 500 Growth ETF (NYSE:SPYG)
Year to date Daily Total Returns: 22.00%
SPDR Portfolio S&P 500 Growth ETF (NYSE:SPYG) is part of the SPDR State Street Global Advisors fund family. The ETF has 19 billion in net assets, and like the iShares S&P500 Growth ETF, it also tracks the S&P500 Growth Index. The fund is a large cap growth ETF, with holdings in 236 firms and an average P/E ratio of 23.04. The SPDR Portfolio S&P 500 Growth ETF (NYSE:SPYG)'s top three investments are in Apple Inc. (NASDAQ:AAPL), NVIDIA Corporation (NASDAQ:NVDA), and Microsoft Corporation (NASDAQ:MSFT).
7. iShares Russell 1000 Growth ETF (NYSE:IWF)
Year to date Daily Total Returns: 29.58%
The iShares Russell 1000 Growth ETF (NYSE:IWF) is the third iShares fund on our list so far. Since it is a large cap growth ETF, the fund has a sizeable $72 billion in net assets. The index that the fund tracks, namely the Russel 1000 Growth Index, is made up of a mix of large and mid cap growth companies. The ETF's average price to earnings ratio is 33.37, making it one of the most intensive growth ETFs on our so far.
6. Vanguard Growth Index Fund (NYSE:VUG)
Year to date Daily Total Returns: 33.45%
Vanguard Growth Index Fund (NYSE:VUG) is an absolutely huge ETF with a whopping $182 billion in net assets, reflecting its true nature as a large cap growth ETF. Part of the Vanguard fund family, the ETF was set up in 2000. More than half of the fund is invested in the technology sector, which lends it a high P/E ratio of 35.9 - a reading that also tracks the P/E ratio of its benchmark index. Big tech stocks Apple, Amazon, and Microsoft are the Vanguard Growth Index Fund (NYSE:VUG)'s top holdings.
Invesco QQQ Trust (NASDAQ:QQQ), Vanguard Growth Index Fund (NYSE:VUG), Invesco NASDAQ 100 ETF (NASDAQ:QQQM), and Vanguard Mega Cap Growth Index Fund (NYSE:MGK) are some top performing growth ETFs in 2023.
