Here's Why Growth ETFs Are Attractive Bets Right Now
Zacks Investment Research | Oct 26, 2021 04:00AM ET
Wall Street has been loudly cheering the third-quarter earnings season that has begun on a positive note. After the dullness witnessed in September, in which all the three major indices closed in the red, October has delivered a good run so far. Investors have been gradually overcoming concerns surrounding the Fed’s tapering actions, rising inflationary level and worries over the aggravating coronavirus outbreak.
The earnings season has been going strong. According to Refinitiv data, out of the 117 S&P 500 companies that have reported third-quarter earnings results so far, 84% have surpassed earnings estimates (per a CNBC article). Refinitiv estimates this earnings season to witness a profit growth rate of 35% for S&P 500 companies.
Going on, there have been certain upbeat economic data releases that have raised investor optimism. The retail sales data was remarkable. The metric rose 0.7% in September against Dow Jones estimate of a decline of 0.2% and increasing 13.9% from the year-ago figure (according to a CNBC article). After excluding auto-related sales, retail sales were up 0.8%, surpassing the 0.5% estimate and gaining 15.6% on a year-over-year basis.
The latest ISM Manufacturing Purchasing Managers' Index (PMI) data for the United States paints a rosy picture of U.S. economic recovery. According to a Reuters article, the metric rose to 61.1% in September from 59.9% in August and surpassed forecasts of a decrease to 59.6. Any reading above 50% indicates expansion in U.S. manufacturing activities. Notably, the manufacturing sector, which makes up 12% of the U.S. economy, saw the reading rise forthe 16th consecutive month.
In another encouraging development, a lower-than-expected number of weekly jobless claims added to investor optimism. Initial unemployment insurance claims in the week ending Oct 15 came in at 290,000, as mentioned in a CNBC article. According to the same article, the metric lagged the 300,000 level as estimated by the economists, per a Dow Jones survey.
Investors and vaccine makers like Moderna (NASDAQ:MRNA) and Johnson & Johnson (JNJ) have reasons to cheer the latest update concerning the application of COVID-19 booster shots. To combat the coronavirus outbreak and accelerate the distribution process of extra doses in the United States, the Centers for Disease Control and Prevention and its vaccine advisory committee and the FDA approved the vaccine booster shots produced by Johnson & Johnson and Moderna.
As mentioned in a CNBC article, the regulators have also permitted “mixing and matching” vaccines. This will enable Americans to opt for a booster shot from a different developer than those which came up with the initial doses.
Growth ETFs to Ride the Tide
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Investors have rotated back into growth-oriented market areas in recent weeks on optimism surrounding the economic recovery. In particular, big tech companies have rebounded after being hit by inflation fears and lofty valuation concerns.
Given the bullishness, investors seeking to capitalize on the strong trends should consider growth ETFs. However, it is worth noting that these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility when compared to value stocks. Below, we highlight a few growth ETFs that could be added to the portfolio.
Invesco Dynamic Large Cap Growth ETF VOOG
The fund seeks to track the performance of the S&P 500 Growth Index. It charges an expense ratio of 0.10%. VOOG carries a Zacks ETF Rank #2, with a Medium-risk outlook.
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