S&P 500 pure style indexes divide one third of S&P 500 market capitalization as ‘Pure Growth and one third as ‘Pure Value’. These two buckets have no overlapping stocks. Index constituents are weighted by their style scores as opposed to market cap.
Thus ‘pure’ approaches eliminate any overlap between growth and value. Growth stocks are selected on the basis of three factors: sales growth, the ratio of earnings change to price and momentum. Value stocks are selected on the basis of three ratios: book value to price, earnings to price and sales to price.
How have they performed?
We looked at the 5-year performance (total returns) of S&P 500 Pure Growth and Pure Value indexes versus S&P 500 Growth and Value indexes as well as the broader S&P 500 index. (Read: 3 All-American ETFs to buy now)
S&P 500 Pure Growth index had an annualized return of 13.56% over the five-year period versus 9.20% for S&P 500 Growth index and 8.32% for S&P 500 index.
S&P 500 Pure Value index had an even more stellar performance with an annualized return of 15.62% over the five-year period, when the Value Index lagged behind the broader market with a 7.42% return versus 8.32% for S&P 500 index.
Guggenheim S&P 500 Pure Growth ETF (RPG-Free Report)
Launched in March 2003, RPG tracks the S&P 500 Pure Growth Index, with a total of 110 stocks in its basket. The product is widely spread across individual securities, with the top security accounting for just 2.6% of the asset base. The top three sectors are Consumer Discretionary (30%), Healthcare (18%) and Information Technology (16%).
The product charges a reasonable expense ratio of 35 basis points. It has so far managed to attract assets of $545.1 million.
The P/E and P/B ratios are quite high for the fund at 43.6 and 4.0, respectively, suggesting a concentrated focus on growth.
RPV tracks the S&P 500 Pure Value Index holding 114 securities in its basket and charging investors 35 basis points a year in fees.
Top sectors currently are Financials (35%), Energy (12%) and Healthcare (11%). Like its growth counterpart, this fund is also well diversified among holdings with the top holding accounting for just 3.3% of total assets.
The fund has managed to attract about $273 million in assets so far only despite its outstanding performance. Deep focus on value stocks is evident from P/E and P/B ratios of 18.3 and 2.4 respectively.
The Bottom Line
Given their focused approach and solid performance, these pure style ETFs are definitely worth a look, even though they are slightly more expensive than their simpler cap weighted counterparts. They are excellent choices for investors seeking a play on strongest growth or value characteristics.
Another option could be holdings both these ETFs for a diversified play on the broader market and an outstanding potential to outperform. Holding both these ETFs in equal weights over the last five years would have rewarded investors with a 15.9% annualized return versus 8.8% for the S&P 500.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
