Growth ETFs at the heart of the market rally

Economic and political woes are swarming world over. Yet the U.S. stock market continues to enjoy the longest bull run since the 1940s. Both the S&P 500 and Dow Jones touched new highs yet again in the Monday trading session while the Nasdaq Composite index and the small cap Russell 2000 index logged in big gains, reflecting a broad-based rally.  

While a slew of soft economic data and Greece default concerns softened investors’ sentiments and resulted in concerns over a slowdown in the U.S. economy, a wave of mergers and acquisitions as well as increased buybacks propelled the stocks.

Additionally, a rate hike by the Fed is unlikely anytime soon, suggesting cheap money for another quarter and the potential for further upside in stocks. Oil prices, which were endangering global growth and deflationary pressure, have rebounded strongly in recent months while the U.S. dollar weakened slightly.

Further, Q1 earnings and revenue growth came in much better than expected, though weaker than the recent quarters, as per the Zacks Earnings Trend. Total earnings for the S&P 500 reported so far are up 2.4% on 3.7% lower revenues, much better than the decline of 3.3% for earnings and 4.5% for revenues projected at the start of the earnings season.

Given this, there have been winners in every corner of the U.S. market delivering smart returns from a year-to-date look. While this is true, we have highlighted growth funds that are clearly outperforming the broader market fund (SPY) as well as their value counterparts by wide margins. Any of these could be excellent plays for investors seeking to ride out the bullish run in the months ahead.

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Guggenheim S&P SmallCap 600 Pure Growth ETF (RZG)

This fund targets the small cap U.S. market and follows the S&P SmallCap 600 Pure Growth Index. Holding 133 securities in its basket, it is well spread out across components with each holding less than 2.05%. Financials, health care, consumer discretionary, information technology, and industrials are top five sectors with double-digit allocation each.

The fund has amassed $155.2 million in its asset base while trades in light volume of about 15,000 shares a day on average. Expense ratio came in at 0.35%. The product has surged 11.4% so far in the year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook.

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Guggenheim S&P MidCap 400 Pure Growth ETF (RFG)

This ETF provides exposure to the mid cap segment of the broad U.S. stock market by tracking the S&P MidCap 400 Pure Growth Index. The product has $736.9 million in AUM while sees average daily volume of around 22,000 shares. It charges 35 bps in annual fees from investors.
The fund holds 86 stocks, which are well spread across securities, with none holding more than 2.86% of total assets.

From a sector look, information technology and consumer discretionary take the top two spots with over 20% share while financials, health care and industrials round off the top five. The fund gained 10.2% year to date and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook.

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Columbia Large Cap Growth ETF (RPX)

This ETF uses an active approach and seeks long-term capital appreciation by investing in large-cap stocks that have above-average growth prospects. The manager combines fundamental and quantitative analysis including competitive advantage, quality of balance sheet and earnings, growth prospects, and potential for growth and stock price appreciation to select the stocks in the fund.

This approach results in a basket of 80 securities with the largest allocation going to Apple (AAPL) at 7.3%. Other firms hold no more than 3.25% share in the basket. From a sector look, the product has a slight tilt toward technology with 32% share, followed by consumer discretionary (20%), health care (18%) and industrials (10%).

RPX is often overlooked by investors in the large cap space as depicted by its AUM of $9.3 million and average daily volume of just 2,000 shares. Due to its active management, the fund is costly, charging investors 83 bps in fees per year. It has gained nearly double digits in the year-to-date time frame.

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Bottom Line

The upward journey for these ETFs will likely continue in the coming months given that the U.S. economy is on track for growth in spite of anomalous circumstances like wintry weather, strong dollar or any other factor that might keep the returns at check.
 
GUGG-SP 600 PG (RZG): ETF Research Reports
COLUMBIA LCG (RPX): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
ISHARS-RS 1K VL (IWD): ETF Research Reports
APPLE INC (AAPL): Free Stock Analysis Report
 
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