The long-term performance of the U.S. Large Cap Growth asset class is on par with U.S. Large Cap Blend (aka S&P 500), ± 0.25% CAGR
The oldest U.S. Large Cap Growth ETF has outperformed an S&P 500 index fund by 1.00% CAGR over the last 20 years
There are currently 52 ETFs available in the Morningstar Large Cap Growth category. 15 of these funds have been available for 10 years or longer.
U.S. Large Cap Growth vs U.S. Large Cap Blend (aka S&P 500): January 1972 – February 2019
Source: https://www.portfoliovisualizer.com/
The U.S. Large Cap Growth asset class has been a very productive investment for the last 47 years. This asset class has occasionally trailed the S&P 500’s performance, but it has also outperformed the S&P 500 over long periods, including the last 18 years. Adding a large cap growth fund to a portfolio that already includes a large cap blend fund will not increase diversification. In fact, doing so will increase concentration in large cap growth stocks. But, this asset class can help increase volatility and provide opportunities for arbitrage between growth and blend or value funds. Fortunately, this asset class has a long history of good performance, therefore adding it to a portfolio should not dilute future returns.
The oldest available ETF in the U.S. Large Cap Growth category is the Invesco QQQ, which is an exchange-traded fund based on the Nasdaq-100 Index®. Although the price of this ETF got hyperinflated in 1999, it has still managed to outperform an S&P 500 index fund by 1.00% CAGR since its’ inception date of March 10, 1999.
QQQ vs S&P 500: April 1999 – February 2019
Source: https://www.portfoliovisualizer.com/
QQQ vs SPY: March 10, 1999 – March 2, 2019
Source: https://www.koyfin.com/home
There are currently 52 ETFs available in the Morningstar category named Large Cap Growth. 15 of these funds have been available for 10 years or longer. I have compared each one of these older ETFs against each other head-to-head. The only parameter I used was long-term performance in the ranking chart below. There was no consideration given to liquidity, short-term performance, quality, valuations, diversification or any other metric. Potential investors should perform their own due diligence in deciding whether to include a large cap growth fund in their portfolio.
Source: https://www.morningstar.com/
The 4 best long-term performing ETFs in the U.S. Large Cap Growth asset class were QQQ, FPX, ONEQ and RPG. While all 4 funds have performed very well since their inception dates, they all track different indexes. QQQ tracks an index of the 100 largest NASDAQ listed non-financial companies. FPX tracks an index of stocks that had an IPO (initial public offering) within the last few years. ONEQ tracks an index of most of the companies listed on the NASDAQ exchange. RPG tracks an index of growth companies that are also in the S&P 500 index. Now, let’s see how these four funds have performed against each other over the last 13 years.
QQQ vs FPX vs ONEQ vs RPG: June 2006 – February 2019
Source: https://www.portfoliovisualizer.com/
QQQ vs FPX vs ONEQ vs RPG vs SPY: April 13, 2006 – March 2, 2019
Source: https://www.koyfin.com/home
For a deeper understanding of the how these four U.S. Large Cap Growth funds are managed, let’s look at their stated objectives and strategies.
QQQ – Invesco QQQ is an exchange-traded fund based on the Nasdaq-100 Index®. The Fund will, under most circumstances, consist of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The Fund and the Index are rebalanced quarterly and reconstituted annually. (BEST LONG-TERM PERFORMANCE, LOWEST U.S. MARKET CORRELATION, LARGEST AUM, LOWEST EXPENSE RATIO, LOWEST TURNOVER RATIO)
FPX – The First Trust US Equity Opportunities ETF is an exchange-traded index fund. The investment objective of the Fund is to replicate as closely as possible, before fees and expenses, the price and yield of the IPOX®-100 U.S. Index. The IPOX®-100 U.S. Index is a modified value-weighted price index measuring the performance of the top 100 companies ranked quarterly by market capitalization in the IPOX® Global Composite Index. The index utilizes a 10% capping on all constituents and includes the 100 largest, typically best performing and most liquid U.S. public offerings (“IPOs”) in the IPOX® Global Composite Index. Index constituents are selected based on quantitative initial screens. In general, eligible constituents are added on the sixth day of trading and remain eligible to be included in the Index for approximately four years. The index is reconstituted and adjusted quarterly. Potential Benefits of the First Trust US Equity Opportunities ETF: Systematic exposure to U.S. equity capital and private equity activity and the growth and innovativeness of the U.S. economy via a semi-passive indexing approach. Based on well researched, totally disciplined and transparent index methodology. The IPOX®-100 U.S. Index has historically captured around 85% of total market capitalization created through U.S. IPO activity during the past four years. Tilt towards mid- and large-cap stocks. Investment tool for buy-and-hold investors seeking timely and systematic IPO exposure as well as active market participants due to dynamic index properties. (LOWEST P/B RATIO)
ONEQ – THE FIDELITY NASDAQ COMPOSITE INDEX. The investment seeks to provide investment returns that closely correspond to the price and yield performance of the Nasdaq Composite Index. The fund normally invests at least 80% of assets in common stocks included in the index. It uses statistical sampling techniques that take into account such factors as capitalization, industry exposures, dividend yield, price/earnings (P/E) ratio, price/book (P/B) ratio, and earnings growth to create a portfolio of securities listed in the Nasdaq Composite Index that have a similar investment profile to the entire index. (HIGHEST DIVIDEND, LOWEST P/E RATIO, MOST DIVERSIFIED)
RPG – The Invesco S&P 500® Pure Growth ETF (Fund) is based on the S&P 500® Pure Growth Index (Index). The Fund will invest at least 90% of its total assets in securities that comprise the Index. The Index measures the performance of securities that exhibit strong growth characteristics in the S&P 500® Index. Growth is measured by the following risk factors: sales growth, earnings change to price and momentum. The Fund and the Index are rebalanced annually. (LEAST VOLATILE)
For investors looking to potentially boost returns with growth stocks, the U.S. Large Cap Growth asset class has a great history of good returns. There are over 50 ETFs available in this category, but only 15 of them have 10-year or longer track records. The top 4 funds in this asset class offer different approaches to growth stocks for different investor styles. All 15 of these older funds have outperformed an S&P 500 index fund over the last 12 years, which includes the last U.S. recession. I believe investors will do well with any of these 15 funds, but for those seeking a bit more alpha, the top 4 are certainly worthy of consideration.
Thank you for taking time to read this article. If you found it useful, please share it with a friend.
Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator
Disclosure: We own shares of QQQ, and we intend to buy more shares in the future. I am not a professional investment advisor. Please perform your own due diligence or seek assistance from a Registered Investment Advisor prior to investing in any fund mentioned in this article.
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