13 Best Growth ETFs for a Rip-Roaring 2021
These 13 growth ETFs allow investors to strive for hotter returns without overexposing themselves to one or two high-risk stocks.
2021 has been hailed by many as the year value finally makes its comeback. But investors should ignore growth stocks and growth exchange-traded funds (ETFs) at their own peril.
In the near term, the end of COVID-19 – an important driver for value – doesn't appear quite so close as most experts thought it would be. "Already, due to near-term disappointments in the global vaccination campaign and the evidence of potentially dangerous virus mutations around the world ... value stocks have again underperformed growth stocks," write BCA Research strategists.
If you can look beyond the admittedly uncertain near-term outlook, things still seem to be shaping up well for growth. The Biden administration will take over big aims to invest in clean energy and education investments. A likely divided Congress will keep Democrats from passing any sweeping private-sector overhauls, including in the technology sector. And the stock market is roaring to new all-time highs in anticipation of strong growth once we move past the pandemic.
High-growth stocks can cut both ways, of course, especially if a rotation into value takes the wind out of growth's sails, even temporarily. But you can protect yourself against sharp drops in any individual stock by spreading your risk across dozens or even hundreds of growth stocks, which you can do via growth ETFs.
Here are 13 of the best growth ETFs if you're looking for simple but diversified one-stop investments to capitalize on any number of growth trends in the stock market.
Data is as of Feb. 7.
Vanguard Growth ETF
- Assets under management: $70.6 billion
- Dividend yield: 0.7%
- Expenses: 0.04%, or $4 annually for every $10,000 invested
As the name implies, this ETF is Vanguard's big dog when it comes to providing investors a simple, low-cost index fund with a growth focus. Vanguard Growth ETF (VUG, $265.00) holds about 260 stocks, filtering the largest companies on Wall Street by growth metrics.
It's worth noting, however, that VUG has weighted these holdings by their size. As a result, the top of the list includes some popular mega-cap favorites such as Apple (AAPL), Microsoft (MSFT) and Facebook (FB), and the smaller firms don't have as much sway. In fact, the top 10 holdings represent about 45% of total assets.
That might or might not be a problem for growth-oriented investors who are eager for the big potential in these big names, but it's worth noting nevertheless. Regardless, if you're looking for a large, liquid, straightforward and inexpensive fund, VUG is among the best growth ETFs you'll find.
iShares Russell Mid-Cap Growth ETF
- Assets under management: $15.7 billion
- Dividend yield: 0.4%
- Expenses: 0.24%
If you prefer growth ETFs with a slightly smaller focus, consider exploring the iShares Russell Mid-Cap Growth ETF (IWP, $108.67). This fund holds roughly 350 mid-cap stocks – corporations that typically fall in the range of $2 billion to $10 billion in valuation.
Mid-cap stocks are often appealing to growth investors because of their "goldilocks" characteristics. They are small enough to have a lot of upside, but also large enough that one bad headline or unprofitable quarter won't sink them overnight.
The iShares Russell Mid-Cap Growth ETF is the largest mid-cap growth ETF out there, and the most popular way to play this strategy. Not only does IWP contain a much greater number of smaller companies than the prior Vanguard fund, but the ETF isn't as top-heavy either. Only about 12% of the fund's assets are wrapped up in the top 10 holdings, and the largest holding – COVID-19 vaccine maker Moderna (MRNA) – accounts for a mere 1.4% of assets.
This means in addition to getting access to smaller stocks you may not own in a typical large cap fund, such as streaming technology firm Roku (ROKU) and cloud computing name Twilio (TWLO), your money is spread out more across these names, and your performance isn't as tethered to any single position.
Vanguard Small-Cap Growth ETF
- Assets under management: $16.0 billion
- Dividend yield: 0.4%
- Expenses: 0.07%
If you prefer a focus on even smaller stocks with possibly even more growth potential, you might want to consider the Vanguard Small-Cap Growth ETF (VBK, $293.01).
The portfolio is more than 600 names deep, with a heavy focus on tech startups. Healthcare stocks represent about a quarter of the portfolio, with technology another 22%. And again, you're not just getting wide diversification across hundreds of stocks, but there's even less single-stock risk, with even the largest holdings representing less than 1% of assets each. At the moment, top holdings include home solar energy firm Enphase Energy (ENPH) and document database provider MongoDB (MDB).
While it's not uncommon for a highflying names to surge in market value and wind up at tens of billions of dollars in market capitalization, eventually VBK rebalances to exclude stocks that get too large to be considered small-cap companies anymore.
As is typical of Vanguard's low-cost index funds, VBK is one of the best (and cheapest) growth ETFs on the market.
iShares MSCI EAFE Growth ETF
- Assets under management: $10.2 billion
- Dividend yield: 0.9%
- Expenses: 0.39%
What if you're looking for a growth ETF with an international flavor? You might consider iShares MSCI EAFE Growth ETF (EFG, $102.19), which is one of the largest and most liquid ways to invest in global stocks with growth potential.
For those unfamiliar, EAFE is an acronym for Europe, Australasia and the Far East. That means you are not getting any exposure to North American companies. But you're not exactly investing in no-name companies. Top holdings are plenty familiar not just to investors, but consumers: Swiss consumer giant Nestle SA (NSRGY), French luxury brand LVMH Moet Hennessy Louis Vuitton SE (LVMH) and Japanese electronics icon Sony Corp. (SNE), to name a few.
EFG holds roughly 440 stocks, and only about 22% of assets are wrapped up in the top 10 holdings. That makes it one of the best growth ETFs for adding a nice layer of diversification to any portfolio that already has decent exposure to U.S. names.
iShares China Large-Cap ETF
- Assets under management: $4.3 billion
- Dividend yield: 2.1%
- Expenses: 0.74%
While it's not a pure growth-oriented ETF that involves screening for impressive revenue expansion or other metrics, the iShares China Large-Cap ETF (FXI, $51.69) is undoubtedly an ETF to watch if you're interested in growth.
That's because China is one of the few consistently growing regions in the world. China's GDP expanded 2.3% last year, making it the only major economy to report any growth last year. For 2021, the country is expecting to deliver an impressive 8.4% in GDP growth.
FXI is the simplest and largest way to tap into this trend, with a focus on the large-cap companies that are powering China's economy. Some names, such as Alibaba Group (BABA), are traded on major domestic exchanges, while others, such as tech conglomerate Tencent (TCEHY) are traded "over the counter."
The iShares China Large-Cap ETF doesn't offer a ton of diversification, with just 50 holdings at present, and 10 of those accounting for almost 60% of assets. And as with focusing on individual stock sectors, there are unique risks and opportunities involved with a geographic focus.
Nonetheless, growth investors may want to take note of the impressive outlook for China when the rest of the global economy is still reeling from the pandemic.
Invesco QQQ Trust
- Assets under management: $159.1 billion
- Dividend yield: 0.6%
- Expenses: 0.20%
Looking beyond size or geography, one other interesting way to broadly bias your investments towards more "growth" stocks is to look beyond the stodgy large-cap indexes like the Dow Jones Industrial Average and to the more innovative and tech-heavy Nasdaq-100 – a group of the 100 largest nonfinancial companies traded on the Nasdaq exchange.
Though there are other ways to invest in the Nasdaq-100, the largest and most liquid is the Invesco QQQ Trust (QQQ, $331.36). The top three holdings are trillion-dollar Nasdaq-listed standouts Apple, Microsoft and Amazon.com (AMZN), which collectively make up nearly 30% of the portfolio. Tech stocks make up the largest slice of the fund at nearly half of assets. And remember: That doesn't include stocks such as Amazon and Tesla (TSLA) that belong in the consumer discretionary sector, or Facebook and Google parent (GOOGL), which are classified as communication services stocks.
Despite having many of the same top holdings as the S&P 500, this is a much different index with much different performance. The Nasdaq-100 index has delivered a roughly 46% total return (price plus dividends) over the past year, versus about 19% for the S&P. That puts it among the best large-cap growth ETFs out there.
One last note: If you're in it for the long term, the Invesco Nasdaq 100 ETF (QQQM) might be the better play for you. This recently launched ETF acts the same as the QQQ, but charges a cheaper 0.15% to better appeal to retail investors.
Vanguard Information Technology ETF
- Assets under management: $43.0 billion
- Dividend yield: 0.8%
- Expenses: 0.10%
From a sector perspective, the most popular way to tap into a growth-investing strategy is to overweight tech stocks in your portfolio.
At the same time large technology players are reliably increasing profits in sales year after year as they spread their wings into other sectors, smaller firms continue to come public at a rapid pace, offering up their own bright growth stories. Thus tech-focused funds are typically found among Wall Street's best growth ETFs.
The Vanguard Information Technology ETF (VGT, $370.70) is the largest and most liquid tech-sector ETF out there. While it holds more than 340 stocks at present, again, heavy weights at the top of the fund are worth considering. Top 10 holdings, which include Apple and Microsoft, as well as Visa (V), Nvidia (NVDA) and PayPal (PYPL), account for 57% of assets.
Still, if you're growth-oriented, there are worse problems than being biased toward the biggest tech companies on Wall Street.
Health Care Select Sector SPDR Fund
- Assets under management: $24.9 billion
- Dividend yield: 1.5%
- Expenses: 0.12%
Offering another sector-led approach to growth investing, the Health Care Select Sector SPDR Fund (XLV, $115.67) allows for a diversified strategy across this reliable and consistently growing segment of the stock market.
Healthcare offers the best of both worlds. On the one hand, it's defensive, as Americans simply have no choice but to pay for healthcare – indeed, healthcare contributes to roughly 18% of U.S. GDP. But it's also a growth play. It regularly outpaces the rate of inflation, and healthcare spending is predicted to continue doing so. The Centers for Medicare & Medicaid Services project healthcare expenditures will grow by 5.4% annually on average through 2028.
If you want to ride this mega-trend of ever-increasing healthcare spending in the U.S., then XLV is your primary way to do so. This established index fund boasts large assets, strong trading volume and, most importantly, cheap fees.
The portfolio is a who's who list of the biggest names in healthcare, including Tylenol and Band-Aid manufacturer Johnson & Johnson (JNJ), insurance giant UnitedHealth Group (UNH) and Big Pharma mainstay Abbott Laboratories (ABT).
Invesco WilderHill Clean Energy ETF
- Assets under management: $3.4 billion
- Dividend yield: 0.4%
- Expenses: 0.70%
One of the best performing ETFs of 2020 by more than tripling across the year, Kip ETF 20 selection Invesco WilderHill Clean Energy ETF (PBW, $129.87) offers investors access to a diversified list of about 50 top alternative energy stocks. These companies span top solar names such as ReneSola (SOL), hydrogen fuel cell player FuelCell Energy (FCEL) and electric vehicle maker Arcimoto (FUV) near the top of its holdings.
With the continued global focus on climate change and Biden administration making it clear that sustainability will be a top priority, there is a big tailwind for the entire clean energy space right now. That means most funds with a focus on green energy can be considered growth ETFs right now.
The space assuredly will experience volatility in the short term, as some early entrants remain unprofitable. But this industry boasts a lot of growth potential, and based on the assets piling into these funds, Wall Street knows it.
ARK Fintech Innovation ETF
- Assets under management: $3.2 billion
- Dividend yield: 0.4%
- Expenses: 0.75%
Of all the high-growth areas of technology, one of the most promising right now is the emerging subsector of "fintech" where companies are marrying traditional (and quite lucrative) financial services with high-tech interfaces.
A few examples of this in action are the core holdings of the ARK Fintech Innovation ETF (ARKF, $57.79), which include mobile payments giant Square (SQ) and real estate portal Zillow (Z). There are also more traditional financial industry operators like NYSE owner Intercontinental Exchange (ICE), which continues to move its legacy model into a digital age with efforts including its Bakkt blockchain and cryptocurrency arm as well as an increased focus on market data.
The coronavirus disruption has proven how much of the traditional economy has moved online, and the long-term trend where traditional brick-and-mortar banks have been slowly replaced with high-tech alternatives should continue in 2021 and beyond.
First Trust Indxx NextG ETF
- Assets under management: $941.7 million
- Dividend yield: 1.0%
- Expenses: 0.70%
First Trust is admittedly not as big of a name as Vanguard or iShares, focusing on smaller and more tactical ETFs. However, its First Trust Indxx NextG ETF (NXTG, $73.29) holds its own with growth ETFs offered by much larger shops thanks to increased investor attention on the megatrend of 5G telecommunications.
While you might have heard the term 5G via ads from your wireless data provider, promising you faster speeds, the real opportunity here for investors is via the components of NXTG that make this next-generation network (and future ones) possible. This includes Chinese technology firm Lenovo Group (LNVGY) and American semiconductor maker Skyworks Solutions (SWKS), among others, who are seeing a lot of new business as a result of this next-generation wave of communications.
If you want to play the 5G revolution, this First Trust fund provides access to the hardware firms building out the network of the future and cashing in directly on this long-term growth trend.
Amplify Online Retail ETF
- Assets under management: $1.8 billion
- Dividend yield: 0.5%
- Expenses: 0.65%
Every year, online shopping continues to gobble up a bigger and bigger share of total U.S. retail sales. In 2019, for instance, e-commerce sales increased 14.9% while total retail sales increased only 3.8%. And naturally, online retail got a big boost in 2020, popping 44% to $861.22 billion, accounting for 21.3% of total retail sales, according to Digital Commerce 360 estimates.
As a result, the Amplify Online Retail ETF (IBUY, $133.47) has been on a tear with gains of more than 125% over the past 52 weeks. Amazon is unsurprisingly a component of this fund, but because IBUY isn't built just on market weight, it's only in the middle of the holdings list. Tops at the moment include at-home styling brand Stitch Fix (SFIX) and InterActiveCorp (IAC), whose large list of brands include HomeAdvisor, Angie's List, Vimeo and Care.com.
Anyone with an internet connection knows the convenience of buying online, with easy price comparisons and many merchants now offering next-day or even same-day shipping. While digital buying might trickle lower a little once the world gets closer to normal, many of the gains made in online spending habits over the past year should stick, allowing the e-commerce industry to thrive in 2021 and beyond.
SPDR S&P Biotech ETF
- Assets under management: $8.6 billion
- Dividend yield: 0.2%
- Expenses: 0.35%
The SPDR S&P Biotech ETF (XBI, $166.78) might play in just one niche of the healthcare sector, but it's still a fairly large ETF given the biotechnology industry's appeal to growth-oriented investors.
The XBI invests in 170 companies that produce life-changing (and sometimes life-saving) therapies through biological processes, as opposed to pharmaceuticals, which are derived through chemical means. But what makes XBI stand out is that it tracks a modified equal weighted index, which allows for large, medium and small biotech companies alike to contribute to the growth of this fund.
That's good, because while biotech has high upside, it also has high risk. Some of these companies are pouring cash into research and waiting for an FDA approval to make a material change in their ability to make a profit. Holding one or two such names presents some danger, but investing across a diversified basket of these names means you won't lose your shirt if a few of these ambitious companies fall short.
XBI is up nearly 75% over the past year, thanks in part to coronavirus concerns powering the sector. But this growth ETF has delivered over the long-term, too, with a 726% total return over the past 10 years that dwarfs the S&P 500's 263% return in that time.