Investors lost more than $9 trillion in this year's sell-off already, says Wilshire Associates, due mostly to falling growth stocks in the S&P 500. But don't assume cheap value and dividend stocks are all you want in the future.
Growth stocks remain the best place to be, long term, despite this year's meltdown. Nine out of the top 10 U.S.-stock ETFs in the past 10 years are still growth funds, says an Investor's Business Daily analysis of data from Morningstar Direct. Similarly, nine of the top 10 ETFs in the last 15 year are also growth.
It's remarkable that growth remains the decade's winner, even after the year we've been having. The Invesco S&P 500 Pure Growth ETF is down 28.9% this year. That's in stark contrast with the 0.9% decline this year in the Invesco S&P 500 Pure Value ETF.
"Despite the pendulum swinging recently in favor of value ETFs, investors were historically rewarded for investing in growth ETFs," said Todd Rosenbluth, head of research at ETF Trends.
Looking At the Long-Term Winners
It's easy to get distracted with short-term outperformance of value and dividend stocks. But the long-term edge of growth ETFs persists even as many crater this year so far.
Going back 15 years, the No. 1-returning major U.S. diversified ETF remains Invesco QQQ Trust. It owns the 100 most valuable, mostly growth, stocks on the Nasdaq. The QQQ returned 13.9% annualized in the past decade and a half. That edges out the performance of any major value-focused ETFs in that time.
Invesco QQQ is also the top-performing U.S. diversified ETF in the past 10 years, rising 17.5% annualized. And that's even after losing roughly a quarter of its value just this year.
The QQQ isn't a growth stock ETF per se. But it's still a good proxy for one. More than half the Nasdaq 100 is still in information-technology stocks, a sector that's predominantly growth. And nearly 17% of the ETF is in communications services, a sector adjacent to growth.
But discounting all that, the No. 3 top U.S. diversified growth ETF in the past 15 years is still SPDR Portfolio S&P 500 Growth ETF. It returned 10.7% annualized in the past 15 years. And it returned 14.7% annualized in the past 10. Compare that with the Vanguard Value ETF, which has returned just 7.2% in the past 15 years and 12.4% in the last 10. And growth also tops the long-term run of the S&P 500: up 8.7% annualized in the past 15 years and 13.4% in the past 10.
Skeptics From Academia
Some might suggest, though, that growth's long-term dominance is just another sign that value stocks have more room to run. And classic academic thought says value stocks are a better risk-adjusted bet for the long term.
The IFA U.S. Large Value Index returned 10.7% annualized since January 1928. And during that time, its risk (or standard deviation) is 21.8%. That means value stocks in that very long period topped the 9.2% return of the IFA U.S. Large Growth Index with just 13% additional risk, says Index Fund Advisors.
ETF investors don't seem too bothered by the debate between value and growth, though. Or by the S&P 500's sell-off either, for that matter. Investors plowed a net $2.4 billion into U.S. stocks for the fourth straight week, says Bank of America. And ETFs are a big target of that cash.
"ETF inflows outpaced single stock inflows (biggest ETF inflows since late March)," says a Bank of America report. "Inflows were chiefly into large cap and broad market ETFs and were broad-based across styles (such as) blend, growth, value."
But S&P 500 investors should avoid loading up on popular dividend and value stocks just because they're working now. Diversification still applies.
"While near-term results might scare investors from putting money to work in beaten-down growth ETFs, these funds are likely to still contribute meaningfully to returns for patient investors in the long term," Rosenbluth said.
Top-Performing ETFs In The Past 15 Years
| Name | Symbol | 10-year annualized return | 15-year annualized return | Total return (loss) year to date |
|---|---|---|---|---|
| Invesco QQQ Trust | 17.5% | 14.0% | -26.5% | |
| Fidelity Nasdaq Composite | 15.7 | 11.5 | -27.0 | |
| SPDR Portfolio S&P 500 Growth | 14.7 | 10.7 | -25.3 | |
| iShares Russell 1000 Growth | 14.8 | 10.7 | -26.2 | |
| iShares S&P 500 Growth | 14.6 | 10.5 | -25.4 | |
| Vanguard Growth | 14.2 | 10.4 | -28.4 | |
| iShares Core S&P US Growth | 14.3 | 10.3 | -25.2 | |
| First Trust NASDAQ-100 Equal Wtd | 14.3 | 10.3 | -25.6 | |
| iShares Morningstar Growth | 14.2 | 10.1 | -28.2 | |
| Invesco S&P 500 Pure Growth | 12.9 | 10.1 | -28.9 |
