Smart beta growth stock ETFs have received healthy inflows over the past month as the global equity rally sees no sign of slowing.
Almost a decade after the great financial crash, experts say the US stock markets are at record levels and even at risk of overpriced valuations.
Yet TrackInsight data found that investors put €136.2 ($158.4) million into growth ETFs since 1 October, choosing ETFs whose underlying company earnings are expected to grow at an above-average rate compared to its industry or the overall market. Performance of these stocks is up around 1.6% over that month.
The surge in growth is complemented by popularity in smart beta high dividend stocks, which saw €155.8 ($181.2) million in that time. Dividend growth companies tend to be less susceptible to large market swings and can act as a hedge against political or economic uncertainty.
Low vol and value ETFs losing favour
On the flip side, while markets are high, investors have less preference for low volatility and value stocks, which are seen to be undervalued by the market and will hopefully make gains in the future. While the former only gained €10.5 million in October, the latter barely gathered €6 million.
Interestingly, multi-factor ETFs, which combine equity risk factors to even out choppy waters and avoid market timing, lost more than €3 million, and momentum stocks – which usually do well in rising markets – lost more than €12 million.
Growth ETF options
There are 48 growth ETFs listed in the US, for investors who want to tap into the trend.
The largest is the $38.1 billion iShares Russell 1000 Growth ETF (IWF) which costs 0.20%. It is up 24.7% year to date, compared to the bellwether SPDR S&P 500 ETF (SPY)’s 16.7% over the same period. In terms of flows, it has risen by $533.75 million in the last month.
The second most popular option in terms of assets is much cheaper. The Vanguard Growth ETF (VUG) has $29.8 billion under management and costs just 0.06%. VUG has risen 23% since 1 January and gained $234 million in the last month.