– The oldest and most popular U.S. Large Cap Growth ETF has outperformed an S&P 500 Index Fund by 0.96% CAGR (compounded annual growth rate) over the last 19 years
– There are currently 45 ETFs available in the U.S. Large Cap Blend Morningstar Category
– Of those 45 ETFs, 15 have been available for 10 years or longer
– The top 4 ETFs in this asset class have produced returns above 12.95% CAGR over the last 10 years
US Large Cap Growth vs US Large Cap Blend: January 1972 through February 2018
Source: PortfolioVisualizer.com
Although the U.S. Large Cap Growth asset class has trailed the U.S. Large Cap Blend asset class by 0.28% CAGR since 1972, I believe it is worth considering as an investment due to some extended periods of outsized returns. The reason I state this is because the oldest available ETF in this asset class, the PowerShares QQQ, has significantly outperformed an S&P 500 index fund since the inception of the QQQ ETF. This asset class is certainly more volatile than a large cap blend fund, but when purchased on dips and corrections, this volatility could present investors with some great investment opportunities.
QQQ vs S&P 500 index fund: April 1996 through March 2018
Source: PortfolioVisualizer.com
The PowerShares QQQ ETF has held up very well despite being decimated in the 2000 Tech Wreck. It took many years for this ETF to recover from that market crash, but in the meantime, it has flushed the worst performing stocks and the stocks that remain have become extremely profitable. Could we see another major market decline like we saw in 2000? Quite possibly, yes. But, that is part-in-parcel with owning a volatile asset class like large cap growth equities. It is my opinion that the volatility of this asset class can be harnessed by purchasing shares when there are significant dips and corrections in the large cap growth fund that you choose to own. Although the chart above looks rather intimidating, it should be noted that the QQQ ETF has outperformed an S&P 500 index fund over the last 5-year (+6.31%), 10-year (+5.82%) & 15-year (+3.96%) periods, and since inception (+0.96%).
There are currently 45 U.S. Large Cap Growth ETFs available according to the Morningstar ETF Screener tool. Fifteen of these ETFs have been available to investors for 10 years or longer. I have back tested all 15 of these older ETFs head-to-head at PortfolioVisualizer.com. By back testing these funds beyond the 10-year mark, we can get a little better understanding on how these ETFs may act in the future as a long-term holding. After comparing these ETFs with each other, I ranked them in order by the best long-term returns.
Source: Morningstar.com
The top four ETFs have each produced over 12.95% returns over the last 10 years. Each of these 4 ETFs have some similarities in that they are large cap growth funds and they hold many of the same companies, but there are also some significant differences. QQQ is a cap weighted fund that tracks the largest 100 non-financial stocks listed on the NASDAQ Composite. FPX is a value weighted fund that tracks the 100 largest IPO stocks. RPG is a large cap growth fund that tracks stocks that are rated across 6 different growth factors. ONEQ is a cap weighted fund that tracks all the stocks listed on the NASDAQ Composite. We can get a better understanding of how these ETFs are constructed by looking at their stated objectives, descriptions and strategies.
QQQ vs S&P 500 index fund: April 1996 through March 2018
Source: PortfolioVisualizer.com
QQQ: Invesco PowerShares QQQ™, formerly known as “QQQ” or the “NASDAQ- 100 Index Tracking Stock®”, 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.
FPX vs QQQ: June 2006 through March 2018
Source: PortfolioVisualizer.com
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. The index is a rules-based value-weighted index measuring the average performance of U.S. IPOs during the first 1000 trading days. Index constituents are selected based on quantitative initial screens. The index is reconstituted and adjusted quarterly. 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.
RPG vs QQQ: April 2006 through March 2018
Source: PortfolioVisualizer.com
RPG: The Guggenheim S&P 500® Pure Growth ETF seeks to replicate as closely as possible, before fees and expenses, the performance of the S&P 500® Pure Growth Index. The S&P 500® Pure Growth Index measures growth in separate dimensions across six risk factors: sales growth, earnings change to price, and momentum. The Pure Style Growth Index Series only includes those stocks from the parent index that exhibit strong growth characteristics, and weights them by style score. Precise Style Exposure. By eliminating ambiguous or blend style stocks, a pure style approach delivers exposure to only those stocks with the strongest value and growth style attributes. Outperformance Potential. Positioned to provide targeted style exposure and the potential to outperform when a particular style is in favor. Alternatively, when a particular style is out of favor, it may underperform. Potential Tax-Efficient Exposure. Due to the tax-efficient nature of the ETF structure (creation/redemption process), Guggenheim pure style ETFs historically have not paid long-term capital gains. There is no guarantee that this will be the case in the future. Tax-efficient exposure is not an explicit objective of the funds.
ONEQ vs QQQ: November 2003 through March 2018
Source: PortfolioVisualizer.com
ONEQ: 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.
QQQ vs FPX vs RPG vs ONEQ: June 2006 through March 2018
Source: PortfolioVisualizer.com
I hope that you now have a better understanding of the four best long-term performance ETFs in the U.S. Large Cap Growth asset class. I believe that investors with a long investment time horizon and a strong stomach for volatility can capitalize on this asset class by purchasing shares of any of the top four funds during markets dips and corrections. Each investor needs to consider their own risk tolerance and objectives before investing. As for me, I believe the growth potential of this asset class is well worth the potentials risks involved.
Thank you for taking time to read this article. If you found it informative, please share it with a friend.
Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator
Discloser: I intend to purchase shares of QQQ within the next 72 hours and continue accumulating shares of QQQ in the future. I am not a registered investment advisor. Please perform your own due diligence or seek assistance from a registered investment advisor before investing in any fund mentioned in this article.