AAs we enter the second half of 2022, among the themes that are abundantly clear is the strong outperformance of growth stocks by value stocks, ending a period of more than a decade of dominance by the former .
Thus, previously popular sectors, in particular communication services, consumer discretionary and technology, are deeply out of favor, ranking among the worst performing groups this year. Identifying the reasons for the growth stocks malaise is not difficult.
Rising interest rates are making the future cash flows of companies growing, and it’s clear that more rate hikes are on the way because the Federal Reserve has been slow to fight inflation. Speaking of inflation, it’s a predictable drag on consumer spending and the signs of this strain are already appearing.
There are, however, a few positives. Clearly, growth stocks will not remain permanently moribund and this year’s difficulties are creating rare opportunities for valuation among growth stocks. With these potential benefits in mind, here are some growth ETFs investors can evaluate.
Goldman Sachs Future Tech Leaders Equity ETF (GTEK)
The Goldman Sachs Future Tech Leaders Equity ETF (GTEK) focuses on disruptive and innovative growth stocks – an investment style that is being savagely repudiated this year. While investors should recognize the challenges of disruptive growth this year, they shouldn’t discount what remains a compelling long-term strategy.
GTEK exploits this notion through active management and diversification, which are two characteristics that could work in favor of investors over longer holding periods.
“90% of the world’s data has been produced in the past two years, increasing the need for businesses to store, manage and work efficiently with large datasets,” according to Goldman Sachs Asset Management (GSAM). “Companies such as UiPath and C3.ai have provided innovative software solutions, such as robotic process automation, to organizations seeking to automate large-scale operations.”
Invesco Nasdaq Next Gen 100 ETF (QQQJ)
The Invesco Nasdaq Next Gen 100 ETF (QQQJ) is taking off this year in part because this growth ETF leans into mid- and large-cap growth stocks. That is, it could be an ideal growth ETF for risk-tolerant investors looking for mid-cap exposure. QQQJ is also a handy idea for investors looking for thematic exposure without having to bet on a specific theme.
“Thematic investing has become a go-to way for investors to align portfolios with the trends shaping the future,” according to BlackRock research. “A range of long-term and short-term themes are increasingly influencing companies leading the way as economies grow and markets evolve. Major themes over the past four years have captured an average of nearly 25% of U.S. stock market returns, a trend that has accelerated since the emergence of COVID-19 in 2020.”
The $808.6 million QQQJ tracks the Nasdaq Next Generation 100 Index, which is the training ground for stocks seeking promotion to the famed Nasdaq-100 Index (NDX).
Goldman Sachs Innovate Equity ETF (GINN)
The Goldman Sachs Innovate Equity ETF (GINN) is not a carbon company of the aforementioned GTEK. On the contrary, GINN is a passively managed growth ETF that relies on large and mega cap growth stocks.
Opportunities abound with GINN as this growth ETF is packed with venerable communications services, cyclical consumer and technology stocks that are now trading at unusually low multiples, indicating there is value to be had here.
“The style score is based on metrics such as earnings, sales, book value and cash flow growth rates. It also takes into account dividend yields and relative valuations such as price to projected earnings, price to pound, price to sales and price to cash flow,” writes Morningstar analyst Lauren Solberg. “At the heart of how growth stocks will perform in 2022 are their valuations, which are largely based on future earnings expectations. And these criteria are affected by the level of interest rates.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.