This month’s ETF First Cut seeks out domestic large-cap growth stock funds that have performed well within their peer group over the last five years. Domestic large-cap stocks are a core asset allocation segment for most investors. Large-company stocks provide equity participation in the domestic stock market while providing less volatility than smaller companies and normally higher dividend yields. Growth approaches have shone over the decade, supported by the strong performance of disruptive companies such as Amazon, Apple, Facebook, Google and Microsoft that have become some of world’s largest firms.

There are 79 domestic large-cap growth-focused stock exchange-traded funds in the AAII universe of ETFs. The screen first focused on consistent performance by requiring one-, three- and five-year return grades of C or better. Performance grades are calculated by comparing an ETF’s return to other funds in the same category, with an A grade indicating best performance within a category. These filters excluded ETFs in the lowest 40th percentile for the category, which equates to performance grades of D and F.

It is generally best to first focus on an ETF category that you seek to match your desired asset allocation and then identify ETFs in your target category with strong relative performance, acceptable risk and low expenses within their category.

To help eliminate ETFs taking on excessive risk to achieve their performance, we then excluded funds with a risk rank of F. The passing table lists the ETF’s category risk index, which relates an ETF’s volatility over the last three years to the average volatility of ETFs in the same category. ETFs with a category risk index of 1.00 had average volatility within the category.

To help take costs into consideration, the screen required that the ETF’s expense ratio be below average within the category. ETFs designated as leveraged or inverse were also excluded.

The final filters required minimum total assets of $25 million and average daily trading volume of at least 5,000 shares. In total, just nine ETFs passed all of the filters as of April 30, 2021, and they are ranked by their five-year return. The indexes followed by each ETF are listed in the table. Averages within the large-cap growth and large-cap value ETF categories are presented to show how these funds compare and how much the performance of growth and value funds has diverged over the last five years.

Large-Cap Growth ETFs With Consistent Strong Relative Performance
(Ranked by Five-Year Return)

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