How to become a growth investor using ETFs 

How has growth investing historically performed?

Growth stock outperformance comes in bursts. As mentioned earlier, they tend to outperform when inflation and interest rates are low. When the opposite is true (like in 2022 so far), they tend to underperform the market. Overall, growth stocks are more volatile, with a higher standard deviation and max drawdown. Investors could reap strong gains after a sustained bull market (like from 2017 – 2021) but will suffer deeper drawdowns during bear markets (like the 2001 Dot-Com bubble). 

The common mistake new growth investors make is chasing performance. That is, they buy in during the run-up and double down at the peak. While this could work as a momentum strategy based on technical indicators, it is not ideal for a buy-and-hold approach. The old saying goes, "it is easy to be a genius in a bull market." When the investment environment changes, growth stocks can suffer heavily. 

Many investors who bought pandemic-era growth stocks like Zoom (ZM), Palantir (PLTR), Shopify (SHOP), Coinbase (COIN), and Robinhood (HOOD) at the all-time highs are now down 80% or more on their investment in some cases. Beyond looking at financial metrics, the best way to successfully implement a growth investing strategy is to be mindful of investing biases and have a long-term perspective.

Growth ETFs you could add to your portfolio

An easy way to tilt your portfolio to growth stocks is via an exchange-traded fund (ETF) that tracks a basket of them. Various ETFs offer different types of exposures to various subsets of growth stocks, such as U.S. only, international developed, international emerging, mega, large, mid, or small-cap. In return for an expense ratio, investors gain instant access to a managed portfolio that rebalances itself regularly, allowing them to stay hands-off and passive. 

I used ETF Central’s screener to find a list of growth ETFs and described them based on their strategy, holdings, market cap, geography, and expense ratio. Many of these ETFs tend to be heavily weighted towards the technology and communication sectors and are in no way considered "cheap." Their valuation metrics tend to be quite expensive, even after the recent bear market. 

Keep in mind that a growth-stock tilt is inherently a form of active management, even if passive index ETFs are used. By overweighting growth stocks, investors are consciously betting on that segment of the market outperforming. Before investing, ensure you have thought out your investment thesis and risk tolerance carefully. 

Vanguard Growth ETF (VUG)

• Assets under management: $67 billion
• Expense ratio: 0.04%
• Index: CRSP US Large Cap Growth Index
• Market cap: Large
• Geography: U.S.
• Strategy: Passive index
• Holdings: 266

Vanguard Mega Cap Growth ETF (MGK)

• Assets under management: $10 billion
• Expense ratio: 0.07%
• Index: CRSP US Mega Cap Index
• Market cap: Mega
• Geography: U.S.
• Strategy: Passive index
• Holdings: 104

Invesco QQQ ETF (QQQ)

• Assets under management: $154 billion
• Expense ratio: 0.20%
• Index: NASDAQ 100 Index
• Market cap: Large
• Geography: U.S.
• Strategy: Passive index
• Holdings: 102

iShares S&P 500 Growth ETF (IVW)

• Assets under management: $154 billion
• Expense ratio: 0.18%
• Index: S&P 500 Growth Total Return Index
• Market cap: Large
• Geography: U.S.
• Strategy: Passive index
• Holdings: 241

iShares MSCI EAFE Growth ETF (EFG)

• Assets under management: $8 billion
• Expense ratio: 0.35%
• Index: MSCI EAFE Growth Net Total Return Index
• Market cap: Large/Mid
• Geography: International developed
• Strategy: Passive index
• Holdings: 439

ARK Innovation ETF (ARKK)

• Assets under management: $8 billion
• Expense ratio: 0.75%
• Index: N/A
• Market cap: Large/Mid
• Geography: U.S.
• Strategy: Actively managed
• Holdings: 35