VUG: Like Growth Stocks? Consider Buying These 3 ETFs

Even though the worst of the coronavirus pandemic may perhaps be behind us, many of the issues and challenges it presented in 2020 persist. While many believe that an expected economic recovery will lead to some rotation away from growth stocks into value stocks, the pandemic-led change in consumer behavior may well continue to favor growth stocks this year.

In addition to a new Presidential administration, a slower-than-anticipated pace of COVID-19 vaccinations and the emergence of a new coronavirus strain might create stock market uncertainty in the coming months. In fact, many analysts expect the market to witness another correction in the near term. As a result, betting on individual growth stocks could be risky at this juncture. ETFs could help you mitigate this risk because they offer broad and diversified exposure at minimal operating costs.

Here are four ETFs that we think are positioned to gain this year even though they delivered solid returns in 2020: Vanguard Growth ETF (VUG - Get Rating), iShares Russell 1000 Growth ETF (IWF - Get Rating) and Vanguard Small-Cap ETF (VB - Get Rating).

Vanguard Growth ETF (VUG - Get Rating)

VUG is a passively managed ETF that delivers broad exposure to U.S. large-cap growth firms. The fund tracks the CRSP U.S. Large Cap Growth Index, which selects stocks based on six growth factors – expected long-term growth in EPS, expected short-term growth in EPS, three-year historical growth in EPS, three-year historical growth in sales per share, current investment-to-assets ratio, and return on assets.

VUG has an MSCI ESG Fund Rating of BBB based on a score of 4.47 out of 10. The ETF has$66.95 billion in AUM currently an expense ratio of 0.04%. VUG also pays an annual dividend of $1.68, which represents a 0.65% yield.

VUG is exposed to various industries, with information technology leading the way with a 46.2% weighting. The index also has a 23% exposure to consumer discretionary sector and a13% exposure to the Industrials sectors. The top three among the fund’s 57 holdings are Apple, Inc. (AAPL), Microsoft Corporation (MSFT) and Amazon.com (AMZN).

VUG closed yesterday’s trading session at $260.06. The ETF has gained 35.5% in the past year and has witnessed a net inflow of $797.87 million in the same period. VUG has gained 11.5% in the past three months.

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How does VUG stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Industry Rank

A for Overall POWR Rating.

You cannot ask for better. It is ranked #2 of 48 ETFs in the Large Cap Growth ETFs group.

iShares Russell 1000 Growth ETF (IWF - Get Rating)

IWF tracks an index of U.S. large- and midcap stocks with the highest growth characteristics based on Russell’s style methodology. The ETF holds 453 stocks selected from the popular Russell 1000 Index, based on higher I/B/E/S forecasts for medium-term growth and higher sales per share historical growth as compared to others in the index.

IWF has an MSCI ESG Fund Rating of BBB based on a score of 4.39 out of 10. The fund’s expense ratio is 0.20% and it has $62.94 billion in AUM. The ETF also pays an annual dividend of $1.59, translating to a yield of 0.64%.

IWF has a weighting in excess of 45% to the information technology sector, followed by 17.2% and 14% exposure to Consumer Discretionary and Healthcare sectors, respectively. The top three holdings of the index are also AAPL, MSFT and AMZN.

IWF is currently trading at $247.69. Though the ETF has returned 11.7% over the past three months, it has witnessed a net outflow of $1.48 billion.

IWF’s prospects are also apparent in its POWR Ratings, which accord it a “Strong Buy” rating. It also has an “A” for Trade Grade, Buy & Hold Grade and Industry Rank. It is ranked #3 of 48 stocks in the Large Cap Growth ETFs group.

Vanguard Small-Cap ETF (VB - Get Rating)

VB is one of the giants in the U.S. small-cap space. The ETF tracks the CRSP U.S. Small Cap Index, which includes the bottom 2-15% of the investable universe.

The investment thesis behind small-cap stocks is that these firms are likely to deliver strong growth to a portfolio and should have a much easier time growing than their large-cap brethren.

VB has an MSCI ESG Fund Rating of BBB based on a score of 4.51 out of 10. The ETF has in excess of $41 billion in AUM and an expense ratio of 0.05%. Moreover, it pays a $2.22 dividend, which represents a yield of 1.07%.

VB holds many securities, with nearly 1,727 stocks, and none of the constituents accounts for more than 30 basis points of the fund’s total assets. The fund largest exposure is to the industrials sector, which it accords an 18.6% weighting , followed by the healthcare and consumer discretionary sectors, with 15.8% and 15.3% weightings, respectively. The index’s top three holdings are Enphase Energy Inc. (ENPH), MongoDB Inc. (MDB) and Catalent Inc. (CTLT).

VB is currently trading at $207.43. The ETF has gained nearly 27.3% in the past three months and has witnessed a net inflow of $2.26 billion during that period.

VB’s POWR Ratings reflect a promising outlook. The ETF is rated a “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade and Industry Rank. Within the 53 Small Cap Blend ETFs group, it is ranked #3.

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VUG shares were trading at $260.41 per share on Friday afternoon, up $0.35 (+0.13%). Year-to-date, VUG has gained 2.79%, versus a 2.65% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...