Large-cap growth stocks are generally defined as the stocks of companies with market capitalizations over $10 billion that are growing at faster-than-average rates. Growth stocks have the potential for high investment returns, but also tend to be more volatile than mature, established companies. So, an exchange-traded fund, or ETF, that tracks a large-cap growth index can be the smartest way to invest in them.
Why invest in large-cap growth stock ETFs?
As the name implies, the obvious reason to invest in growth stocks is for the growth potential of the underlying businesses. Growth companies are generally defined as those growing earnings or revenue at a higher-than-average rate, and because of this, these tend to be stocks that don't pay a dividend (or pay a small amount) and trade at relatively high P/E valuations.
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Over time, these stocks have excellent growth potential, but they also tend to be more volatile than stocks of more mature and stable companies. Because of this, it can be a smart idea to invest in an ETF that owns large-cap growth stocks instead of buying individual companies -- this way, you get the long-term potential of growth stocks without depending too much on the performance of any single stock.
3 top large-cap growth ETFs
If you're looking to invest in large-cap growth stocks, here are ETFs that track different indexes that contain large companies that exhibit growth characteristics.
|
Fund Name |
Expense Ratio |
Dividend Yield |
5-Year Average Total Return |
|---|---|---|---|
|
Schwab U.S. Large-Cap Growth ETF (SCHG) |
0.04% |
1.21% |
16.2% |
|
iShares Core S&P U.S. Growth ETF (IUSG -0.10%) |
0.05% |
1.56% |
15.7% |
|
Vanguard Mega Cap Growth Index Fund ETF (MGK -0.00%) |
0.07% |
1.31% |
16% |
Data source: TD Ameritrade. Expense ratios and assets are current as of June 29, 2017, and returns are as of May 31, 2017.
1. Schwab U.S. Large-Cap Growth ETF
The Schwab U.S. Large-Cap Growth ETF tracks the Dow Jones U.S. Large-Cap Growth Total Stock Market Index, and invests in 428 different stocks. However, because this is a weighted index (like most others are), the largest holdings make up more of the portfolio. In fact, 22% of the fund's assets are concentrated in just five companies -- Apple, Amazon, Facebook, Berkshire Hathaway, and Alphabet. With a rock-bottom 0.04% expense ratio, this is the cheapest large-cap growth ETF as of this writing.
2. iShares Core S&P U.S. Growth ETF
The iShares Core S&P U.S. Growth ETF tracks a slightly different group of stocks, the S&P 900 Growth Index, which despite the "900" in the name, consists of about 570 stocks. For the most part, the fund's top holdings are the same, but since different indexes have different criteria for "growth" companies, there are some key differences. To name a couple of big examples, Microsoft is a part of this fund and is the number two holding, and Berkshire Hathaway is not included.
3. Vanguard Mega Cap Growth ETF
As the name suggests, the Vanguard Mega Cap Growth ETF invests in the largest of the large-cap growth stocks in the market. With just 142 stocks, the fund is significantly more narrowly focused than the other two, and top holdings include Apple, Alphabet, Amazon, Facebook, and Comcast. The fund is most appropriate for investors who are willing to give up some diversification in order to invest more of their money in the largest growth stocks in the United States. Finally, even though the fund's expense ratio is a bit more than the other two, it's still remarkably cheap when compared with actively managed mutual funds.
