Growth stocks have consistently outperformed value stocks over the years, often for more than a decade. With market participants remaining optimistic about AI and other disruptive technologies, betting against growth could prove to be a risky and unwise decision. Given this context, a closer examination of various large-cap growth ETFs is essential. Advisors and investors should pay particular attention to the Invesco S&P 500 Pure Growth ETF (RPG).
The RPG, with a market capitalization of $1.7 billion, will celebrate its 20th anniversary in March. This ETF tracks the S&P 500 Pure Growth Index, which evaluates growth purity by analyzing stocks’ momentum, three-year sales per share growth, and three-year earnings per share/price per share growth. These criteria are crucial as they ensure that RPG adheres to its objective of maintaining growth purity. In simpler terms, while some basic growth ETFs may include holdings with blend or heavy value characteristics, RPG effectively mitigates these concerns.
A Good Time to Evaluate RPG
Growth stocks are currently experiencing significant gains, which strengthens the case for RPG. This sentiment is echoed by Bank of America’s recent upgrade of growth ETFs.
“We upgrade our category view of US large cap growth ETFs from Neutral to Favorable given strong returns vs. other factors, fresh inflows, and a mature product suite,” the bank stated in a recent report. “We still expect the relative returns of value and growth to moderate over the medium term and have a Favorable category view on US large cap value ETFs. Nevertheless, factor diversification is always important, and we expect growth funds to remain a useful building block of modern portfolios.”
RPG stands out as a growth ETF worth monitoring. As noted by BofA, investors typically gravitate towards growth stocks in hopes of outperforming broader blend and value indexes. This strategy has proven rewarding over the past five years, with the S&P 500 Growth Index significantly outperforming its value counterpart during this period.
“In this environment, growth has seen an upsurge in investor enthusiasm. Investors have doubled down on their growth exposure, with over $118 billion of inflows to growth ETFs since 2022, more than double the $60 billion of value ETF inflows over the same timeframe,” BofA added.
RPG may also appeal to investors for several reasons. For instance, its 22.228% allocation to tech stocks is relatively light compared to cap-weighted legacy ETFs in the same category. Furthermore, the fund does not allocate more than 2.86% to any single holding, indicating a level of diversification that many traditional large-cap growth ETFs lack.
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