Growth ETFs are one of the best ways to give yourself some potential for returns while still diversifying enough to avoid unnecessary amounts of risk. And, for those of you who are just getting started in investing, an ETF is an “exchange-traded fund,” which is essentially just a collection of securities that you can buy on an exchange.
And they’re a quick and easy way to diversify without having to spend hours and hours researching individual stocks. A “growth” ETF is an ETF that’s expected to outperform the market and grow in value over the years, which means, yes, they will make you money.
So, let’s not waste any more time on boring definitions and get right into it. I’m about to tell you about 7 growth ETFs that, in my opinion, will give you the best chance of having solid returns in 2022.
These are the 7 best growth ETFs in 2022.
#1: Vanguard Growth ETF (VUG)
The reason that Vanguard Growth ETF (VUG) is such a solid investment is that it is aimed toward replicating the CRSP U.S. Large Cap Growth Index. And, if you don’t know what “CRSP” is, it stands for the “Center for Research in Security Prices” and it’s such a reputable database that the Federal Reserve actually uses it for information.
The Vanguard Growth ETF is comprised of 280 primarily large-cap stocks, but there are also some mid-cap stocks spiced in there as well. This ETF is the leader among large-cap growth options with a whopping $74 billion under its management.
And, with so much capital, it’s hard to lose. Over the last 10 years, the fund has continually outperformed the market, averaging 14.80% over that period.
Plus, Vanguard Growth ETF has a negligible expense ratio of just 0.04%, meaning that your fees won’t eat into your earnings too much regardless of what your returns are.
The reason that this ETF is such a safe bet is that it invests most heavily in the big names that you probably think about when you hear the term “growth stock.” Just take a look at their top holdings: Apple, Microsoft, Alphabet, Amazon, and Tesla. And those top 5 holdings comprise nearly 50% of the entire fund.
So, investing in Vanguard Growth ETF is basically like investing in “Big Tech,” but letting the wizards at Vanguard go through the trouble of diversifying within the sector.
#2: ARK Fintech Innovation ETF (ARKF)
After the meteoritic rise of pretty much every ETF managed by ARK Invest in 2020, Chief Investment Officer Cathie Wood became a superstar of the finance world and was believed by some to be the Messiah of the stock market.
Unfortunately, it became pretty clear that these ARK funds got overhyped and overvalued considering pretty much all of them got completely whacked in 2021. But, according to a lot of market experts, Cathie Wood’s stock-picking method might actually be very successful in the long run. Her funds just fell victim to a market downturn and too much hype.
According to The Motley Fool, “She has correctly nailed disruptive growth stocks and emerging trends in the past, and just because the past few months haven’t been kind to her investing style doesn’t mean that she’s lost her touch.” It might just be time to invest and make some serious gains on the bounceback.
And, if you’re going to look at any ARK growth ETF to invest in, you should have ARK Fintech Innovation ETF (ARKF) on the top of your list. As you can probably tell from the name, this fund focuses on financial technology companies, with Coinbase, Shopify, and Block (formerly known as Square) as their top holdings.
This fund has $1.1 billion in assets that are actively managed and allocated between 35 and 55 individual stocks at any given time. A fintech-devoted fund may seem a little specific and a little risky to you but, if you think that technologies like crypto and blockchain are the future, ARK Fintech Innovation ETF is a good way to hop on this wave of innovation while still diversifying properly.
Plus, as you can see from this historical price chart, this ETF has taken quite a beating, so any kind of turnaround could generate serious returns for you. Let’s see if Cathie Wood can get her magic back.
#3: Vanguard Mid-Cap Growth ETF (VOT)
The thing about large-cap companies is that their bottom lines are already so massive that it would take a shift in the Earth’s crust to see any really significant improvement. The thing about small-cap companies is that one little downturn could sink them completely and result in massive losses. So, why not split the difference?
Mid-cap stocks offer the perfect middle ground between potential for returns and safety. Plus, as senior portfolio manager for Thrivent Brian Flanagan points out: “Over the long-term, mid-caps have traditionally offered better growth than the large caps.”
So, if you want to get into the often-overlooked world of mid-cap growth stocks, the best way to do so is to buy into Vanguard Mid-Cap Growth ETF (VOT).
This fund is, once again, backed by the respectable name of Vanguard. It’s got around $10 billion in assets under its belt, which is spread around quite a few sectors, with the top four sectors being technology, industrials, healthcare, and consumer discretionary (which is a fancy term for companies that more non-essential goods like cars and luxury clothes and watches and stuff).
Plus, Vanguard Mid-Cap Growth ETF doesn’t concentrate its funds into just a few companies. Its top 10 holdings only constitute about 13% of its assets. The rest of their holdings are spread out over just under 200 different stocks.
Their expense ratio is 0.07%, which is just about irrelevant when you consider the potential upside that you can get from mid-cap growth stocks. In terms of past performance, the Vanguard Mid-Cap Growth ETF has averaged a return of 11.96% over the past 10 years, which is very consistent and solid.
And, as you can see from their 1-year historic price chart, the price has taken a significant dip in the last few months, which means that right now might be the perfect time to buy in for cheap.
#4: iShares MSCI USA Momentum Factor ETF (MTUM)
To be clear, if you’re planning on investing money in an ETF for the long term, you’re probably way better off going with one of the aforementioned Vanguard funds. However, if you’re looking for a more short-term play that could result in much higher returns, you should look into the iShares MSCI USA Momentum Factor ETF (MTUM),
According to Blackrock’s website, it’s “an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum.” Now, if you’re unaware of what price momentum is, it’s basically a way of measuring how quickly the price of a stock is changing.
So, stocks with high momentum are on the rise, and on the rise fast. They hold about 120 companies, including some Big Tech names like Tesla, Microsoft, NVIDIA, and Alphabet. They also hold some massive financial companies like Bank of America, JP Morgan Chase, and Wells Fargo.
Now, if you’re looking for a safer return in the long term, the Vanguard Growth ETF is probably a much better bet. However, if you’re looking for something to buy and sell within a year, then you’re probably better off going with iShares MSCI USA Momentum Factor ETF.
Whereas the Vanguard Growth ETF has a one-year return of -8.28%, the iShares MSCI USA Momentum Factor ETF delivered a one-year return of 5.29%. Now, that trend might not continue every year and there are definitely more risks involved with more tactical funds like this when compared to more long-term-focused funds.
However, the iShares MSCI USA Momentum Factor ETF has a history of consistent returns over a 3-year and 5-year period. And, sometimes, it can make you a good amount of money in a short period of time.
#5: BlackRock U.S. Carbon Transition Readiness ETF (LTCU)
If you don’t believe that global warming is real, then you probably won’t want anything to do with this ETF. However, you may be missing out on a real opportunity to grow your wealth as well. According to Goldman Sachs, “An opportunity in that the commercialization of low-carbon solutions, including clean energy technologies, can further catalyze an important emerging market and support the transformation of the global energy sector.”
As you probably know, the shift in our economy toward more low-carbon industry is pretty much inevitable. And that will necessarily lead to a reallocation of capital around the economy.
The BlackRock U.S. Carbon Transition Readiness ETF (LTCU) is all about preparing for this shift in the economy. And, no, this ETF isn’t about investing in risky early-stage green innovation companies.
Instead, they look at large-cap companies that are prepared for this transition. Their top 10 holdings are mostly recognizable names, with their top 5 holdings being Apple, Microsoft, Amazon, Alphabet, and Tesla, in that order.
They also hold inflation-fighting beverage companies Pepsi and Coca-Cola, both of which have made commitments to make moves away from their plastic-heavy production methods.
Essentially, this fund includes many of the usual U.S. growth stocks, but only the companies that are forward-thinking about the low-carbon economy of the future, which means that you can support a greener world while still making a super solid investment.
#6: Invesco S&P 500 GARP ETF (SPGP)
Now, if you’re wondering what “GARP” stands for, it’s “Growth at a Reasonable Price” and that’s what this ETF is all about. The Invesco S&P 500 GARP ETF (SPGP) consists of about 75 components of the S&P 500, all of which are growth stocks that are offered at a reasonable price.
When selecting their holdings, they pay particular attention to factors like price-to-earnings ratio and return on equity to ensure that there is actual value and not just some far cry for future profit potential.
Their current price-to-earnings ratio of 15.84 and ROE of 43.99% are rather impressive. Filtering for these factors ensures that an investment in the Invesco S&P 500 GARP ETF is stable and safe and that your money is going toward companies that provide actual value.
Unlike many other growth ETFs, this one is weighted more heavily in the healthcare sector than in technology, with about 30% of their holdings in healthcare, 18% of their holdings in information technology, and 18% in financials.
In fact, their two largest holdings at the moment are Vertex Pharmaceuticals and Cigna Corp. And, according to MacroTrends.net, Vertex has experienced massive revenue increases in the last few years. A 36% increase from 2018 to 2019, a 49% increase from 2019 to 2020, and a 22% increase from 2020 to 2021.
If that tells you anything, it should tell you that Invesco knows how to pick a good growth stock. And their successful methodology shines through when you look at their average returns: a 10-year average of 15.88% and a super-impressive 5-year average of 18.51%.
If you’re looking for a safe bet, investing in companies with solid and stable operations, SPGP is a great bet.
#7: iShares Semiconductor ETF (SOXX)
If you haven’t noticed by now, the focus of many growth ETFs is technology. However, instead of investing in an ETF that is weighted heavily towards technology companies, you could opt to invest in a technology that’s becoming increasingly important to the manufacture of smartphones, digital cameras, cars, LED lightbulbs, televisions, washing machines, and just about every other electronic device out there: semiconductors.
According to McKinsey, the semiconductor industry was worth about $600 billion in 2021 and is expected to grow to over $1 trillion by the end of 2030. So, if semiconductors are a technology that you believe in, you should consider investing in the iShares Semiconductor ETF (SOXX).
Their current top holdings are Broadcom, Advanced Micro Devices, Intel, and Qualcomm, some of the biggest names in the semiconductor industry. Of course, when you’re investing in a single technology, there’s always a chance that a newer, better technology will come along and replace it.
However, most experts agree that semiconductors are here to stay. As you can see from their 5-year historical price chart, this ETF has risen steadily in value over the last half-decade.
And, if the experts are right and the semiconductors industry continues to grow, that price will continue to go up, which means a solid return on investment for you.