Given the current market that is expected to continue for much of this year, exchange-traded funds (ETFs) offer both new and experienced investors a number of advantages over individual company stocks.
Why ETFs?
An ETF is a basket of securities that, like any other stock, can be easily bought or sold on an exchange during market hours. ETFs typically offer diversification across asset classes, industries or global regions – all of which have unique advantages and disadvantages.
An advantage of investing in ETFs: they spread capital over a larger number of companies. Therefore, the possible underperformance of one company, say during the profit seasons, does not necessarily lead to extreme losses for the ETF as a whole.
As a result, ETFs make it easier to overcome short-term starvation in the markets, allowing long-term investors to pursue a more passive buy-and-hold strategy.
However, in the case of global ETFs, it is worth remembering that the fundamentals of a particular region or country, as well as currency fluctuations, are likely to affect the fund's performance.
With all that in mind, here are two exchange-traded funds with long-term growth potential for new investors, even during this period of heightened volatility:
1. Schwab US Large-Cap Growth ETF
Current price: $ 110.79
52-week range: $ 67.25 – 110.92
Dividend Yield: 0.66%
Dividend distribution frequency: quarterly
Expense ratio: 0.04% per year, or $ 4 on an $ 10,000 investment
Schwab U.S. Large-Cap Growth ETF ™ (NYSE 🙂 with 350 holdings, follows the index. Growth companies are typically defined as companies whose revenues or earnings increase at higher than average rates. Many such companies do not pay a dividend or just a small payout. They also usually trade at relatively high price-earnings valuations.
The five main weighting sectors for SCHG make up approximately 86% of the fund. They include information technology (38.31%), consumer goods (15.38%), communication systems (13.75%), healthcare (12.84%) and financial services (5.85%).
The top ten positions make up 42% of total net assets, which is currently close to $ 12 billion. SCHG's three largest companies are Apple (NASDAQ :), Microsoft (NASDAQ 🙂 and Amazon (NASDAQ :).
As the name ETF implies, the main reason for investing in growth stocks is the growth potential of the underlying companies. Year-to-date, the fund has risen nearly 20%. It reached a record high on August 3, 2020. In addition, since it hit a 52-week low at the end of March, SCHG has risen about 65%.
2. SPDR Portfolio S&P 500 Value ETF
Current price: $ 30.34
52-week range: $ 21.77 – 35.45
Return on Fund Dividend: 2.77%
Dividend distribution frequency: quarterly
Expense ratio: 0.04% per year, or $ 4 on an $ 10,000 investment
SPDR® Portfolio S&P 500 Value ETF (NYSE 🙂 with 390 holdings, follows the index.
This benchmark index measures the performance of the large capitalization segment of the US stock market. It consists of those shares with the strongest value characteristics based on: (i) book value / price ratio; (ii) profit / price ratio; and (iii) relationship between sales and price.
The five main weighting sectors are Healthcare (20.89%), Financials (18.36%), Consumer Goods (10.91%), Information Technology (8.35%) and Communication Services (7.96%). These sectors make up almost 67% of the fund.
With total net assets of approximately $ 5 billion, the top ten positions make up 21.3% of SPYV. The fund's three largest companies are (NYSE :), UnitedHealth Group (NYSE 🙂 and Verizon Communications (NYSE :).
YTD, the fund fell by more than 13%. However, since the 52-week low in March, SPVY is close to 40%.
Bottom Line
A wide range of ETFs provide low cost access to different asset classes, industries and international markets.
As the difference between the YTD returns of SCHG and SPYV shows, value stocks have not been as strong as growth stocks so far in 2020. Therefore, it may be helpful to speak to a financial adviser about the suitability of these funds in individual portfolios.
