One of the few appealing combinations in the investment world includes stability offered by large-cap companies combined with growth attributes like solid revenue and high projected growth. That is where large-cap growth ETFs come into play, suitable for investors who can tolerate short-term market uncertainty, have a long-term investment horizon, and adopt a buy-and-hold approach.
Therefore, top-performing large-cap growth ETFs iShares Russell Top 200 Growth ETF (IWY) and Invesco QQQ Trust ETF (QQQ) could be ideal investments this year for stable long-term returns.
The economy added 216,000 jobs in December, and the unemployment rate was unchanged at 3.7%, a historically low figure, the U.S. Bureau of Labor Statistics reported. Hiring last month far topped economist expectations and accelerated from the prior month, rebuking concerns of a recession in the upcoming months and signaling a resilient economy.
However, the robust jobs report may pose a challenge for the Federal Reserve as it tries to cool the economy and slow price increases. The consumer price index (CPI), a closely watched inflation gauge, rose 0.1% in November and was up 3.1% from a year ago.
While the monthly inflation rate indicated an increase from the flat CPI reading in October, the annual rate showed another decline after hitting 3.2% a month ago. Inflation is well below last summer’s peak of 9.1%; however, it remains more than a percentage point above the Fed’s target of 2%.
Policymakers also watch closely the pace of wage growth since a surge in worker pay could prompt businesses to balance out the added costs by increasing prices. Wages grew 4.1% last month compared to a year earlier, defying the downward pressure imposed by the Fed.
The robust jobs data could potentially delay the Fed’s recently announced plans to cut interest rates this year. The central bank, in its recent December meeting, held key interest rates steady for the third consecutive time, staying in a targeting range of 5.25%-5.5%, and set the table for three rate cuts in 2024.
Fed officials “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the [Federal Open Market] Committee’s objective,” according to minutes of their meeting in December.
Amid this backdrop, you could consider investing in large-cap ETFs. Most of these ETFs tend to invest in large-cap companies —those with market caps larger than $10 billion and up to more than $1 trillion—usually with established brands and strong balance sheets.
Most large-cap growth portfolios focus on companies in rapidly expanding industries. These funds offer a higher potential of returns over the long term. Surely, stocks it tracks tend to fluctuate, but large-caps are less volatile compared to their small-cap or medium-cap cousins, making them a better choice for risk-averse investors.
Now, let’s look at the fundamentals of the two Large Cap Growth ETFs, beginning with number 2.
ETF #2: iShares Russell Top 200 Growth ETF (IWY)
IWY offers exposure to large-cap companies within the growth sector of the U.S. equity market. It tracks the Russell Top 200 Growth Index, with exposure tilted heavily toward technology, while industrials, energy, and consumer goods receive equal weightings. Stocks are selected based on two growth factors: medium-term growth forecasts and historical sales per share growth.
The fund has assets under management (AUM) of $8.29 billion. IWY’s top holdings include Microsoft Corporation (MSFT) with a 13.65% weighting, followed by Apple Inc. (AAPL) at 13.37%, and Amazon.com, Inc. (AMZN) and NVIDIA Corporation (NVDA) at 6.49% and 5.68%, respectively.
The ETF has a total of 111 holdings, with its top 15 assets comprising 67.67% of its AUM.
IWY’s expense ratio is 0.20%, lower than the category average of 0.37%. The fund flows came in at $994.24 million over the past three months and $519.46 million over the past six months. Over the past year, IWY fund flows were $1.67 billion.
IWY pays an annual dividend of $1.19, which translates to a 0.70% yield at the current price level. The fund’s dividend payouts have grown at a 7.8% CAGR over the past three years. Its four-year average yield is 0.74%.
The fund has surged 11.1% over the past six months and 43.6% over the past year to close the last trading session at $174.13. It has a beta of 1.07. IWY’s NAV was $174.11 as of January 8, 2024.
IWY’s POWR Ratings reflect solid prospects. The fund has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
IWY has an A grade for Trade, Peer, and Buy & Hold. Within the A-rated Large Cap Growth ETFs group, it is ranked #14 of the 61 ETFs.
To access all the IWY POWR Ratings, click here.
ETF #1: Invesco QQQ Trust ETF (QQQ)
QQQ offers exposure to one of the world’s most widely followed equity benchmarks, the NASDAQ, and is typically one of the most popular exchange-traded products. The fund delivers a wildly famous mash-up of tech, growth, and large-cap exposure. QQQ’s significant average daily trading volumes reflect that it is widely used as a trading vehicle.
QQQ tracks the NASDAQ-100 Index. With $33.70 million in AUM, VPN’s top holdings are AAPL with a 9% weighting, MSFT at 8.70%, and AMZN and Broadcom Inc. (AVGO) with 4.75% and 4.03% weightings, respectively.
The fund has a total of 102 holdings, with its top 15 assets comprising 54.48% of its AUM.
QQQ has an expense ratio of 0.20%, lower than the category average of 0.37%. Over the past month, its fund inflows came in at $1.91 billion and $6.05 billion over the past three months. QQQ fund flows were $8.22 billion over the past year. Also, the ETF has a beta of 1.11.
The fund pays an annual dividend of $2.32, translating to a 0.58% yield at the prevailing price level. Its dividend payouts have grown at a 10.1% CAGR over the past three years and a 10.6% CAGR over the past five years. The fund’s four-year average yield is 0.60%.
QQQ has gained 10.6% over the past month and 49.8% over the past year to close the last trading session at $404.95. It has a NAV of $405.14 as of January 8, 2024.
QQQ’s solid fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade and Buy & Hold. It also has a B grade for Peer. QQQ tops the list of 61 ETFs in the same group.
Click here to see all the QQQ ratings.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
QQQ shares fell $1.98 (-0.49%) in premarket trading Tuesday. Year-to-date, QQQ has declined -1.12%, versus a -0.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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